Money market instrument ppt

Power point on Money market instruments

1. ADITI SHARMA PRATHAM KHURANA DELHI INSTITUTE OF ADVANCED STUDIES

2. M O NEY MARKET As per RBI guidelines A market for short terms financial assets that are close substitute for money, facilitates the exchanges of money in primary and secondary market”. The money market is the mechanism that deals with the lending and borrowing of short term funds( less than one year) A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.

3. Characteristics of a money market. Short term funds Maturity period Conversion of cash No formal place Sub – markets Highly organized banking system Existence of secondary market Wholesale market Flexibility Presence of central bank

4. Functions of money market E c onomic de v elopment Profitable Investment Borrowings by the Government Importance For Central Bank Mobilization of Funds Savings And Investment Self-sufficiency Of Commercial Banks

5. MONEY MARKET INSTRUMENTS Investment in money market is done through money market instruments. Money market instrument meets short term r equi r emen t s of the bor r o w ers and p r o vides liquidity to the lenders The most active part of the money market is the ma r k et f or o v erni g h t ca l l and t erm money bet w een banks and institu t ions and r e p o transactions

6. 1.GOVERNMENT SECURITIES (G- Secs ) Issued by the Government for raising a public lo a n or as noti f ied in the of f icial Ga z e t t e. M aturi t y r an g es f r om of 2 -30 y ear s . G-secs consist of Government Promissory Notes, Bearer Bonds, Stocks or Bonds, Treasury Bills or Dated Government Securities. N o d efault ris k as the securities car r y s o v e r eign guarantee. Ampl e li q uidi t y as the i n v es t or ca n sell the security in the secondary market

7. 2. MONEY MARKET AT CALL AND SHORT NOTICE M oney at ca l l is a loa n that is r e p a y ab l e on demand, and money at short notice is repayable within 14 days of serving a notice. Participants are banks & all other Indian Financial Institutions as permitted by RBI. Banks borrow call funds for a variety of reasons to maintain their CRR, to meet their heavy payments, to adjust their maturity mismatch etc.

8. 3. TREASURY BILLS Short term (up to one year) borrowing instrumen t s of the G o v ernment of In d ia. Enable investors to park their short term surplus funds while reducing their market risk. I ss u ed at a dis c ount t o fa c e v a l ue. Th e r eturn t o the investor is the difference between the maturit y v a l ue and i s sue pri c e. RBI issues T-Bills for three different maturities: 91 days, 182 days and 364 days

9. 4. CERTIFICATES OF DEPOSITS A CD is a time deposit, financial product commonly offered to consumers by banks. CDs are negotiable instrument. Financial Institutions are allowed to issue CDs for a p e rio d bet w een 1 y ear and up t o 3 y ear s . norma l l y g i v e a hi g he r r eturn than B a nk t erm deposit, and are rated by approved rating agencies.

10. 5.COMMERCIAL BILLS Commercial bill is a short term, negotiable, and self-liquidating instrument with low risk. W ri tt e n instrument c ontaining an un c ondi t ional order. Once the buyer signifies his acceptance on the bill itself it becomes a legal document. Commercial bill is a short term, negotiable, and self-liquidating instrument with low risk.

11. 6. COMMERCIAL PAPER Commercial Paper is a money-market security issued (sold) by large banks and corporations to get money to meet short term debt obligations . Commercial paper is usually sold at a discount f r om fa c e v a l ue. Interest rates fluctuate with market conditions, but are typically lower than banks‘ rates.

12. 7.Repurchase Agreements Repo or Reverse Repo are transactions or short term loans in which two parties agree to sell and repurchase the same security. The y a r e usua l l y used f or o v erni g h t bor r o wing Repo/Reverse Repo transactions can be done only between the parties approved by RBI and in RBI approved securities