PRESENTED BY: Sachin jain Sakshi

What

Features

Recent Development

Objective

Characteristic Features

Importance

Disadvantage

Composition

Structure

Instruments

As

per RBI definitions A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market
The

money market is a 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 It doesnt actually deal in cash or money but deals with substitute of cash like trade bills, promissory notes & govt papers which can converted into cash without any loss at low transaction cost.
It

includes all individual, institution and intermediaries.

FINANCIAL MARKETS

CAPITAL MARKET

MONEY MARKET

It is a market purely for short-terms funds or financial assets called near money.
It

deals with financial assets having a maturity period less than one year only.

Transaction have to be conducted without the help of brokers

It is not a single homogeneous market, it comprises of several submarket like call money market, acceptance & bill market The component of Money Market are the commercial banks, acceptance houses & NBFC (Non-banking financial companies)

In Money Market transaction can not take place formal like stock exchange, only through oral communication, relevant document and written communication transaction can be done

Highly

organized banking system of central bank of proper credit instrument

Presence

Availability Existence Ample

of sub-market

resources of secondary market

Existence Demand

and supply of fund

To

provide a reasonable access to users of short-term funds to meet their requirement quickly, adequately at reasonable cost
To

provide a parking place to employ short term surplus funds To provide a parking place to employ short term surplus funds.
To To

provide room for overcoming short term deficits.

enable the central bank to influence and regulate liquidity in the economy through its intervention in this market.

Development of trade & industry Development of capital market Smooth functioning of commercial banks

Effective central bank control

Formulation of suitable monetary policy

Non inflationary source of finance to government

ORGANISED STRUCTURE

COOPERATIVE SECTOR

UNORGANISED SECTOR

RBI

DFHI(Discount and Finance house of India

Commercial banks

Development bank

Public Sector banks

Private banks

SBI with 7 subsidiaries

Co-Operative banks

20 nationalized banks

Indian banks

Foreign banks

UNORGANISE D SECTOR

COOPERATIVE SECTOR

Indigenous banks

Money lenders

Nidhis

Chits

State cooperative

State Land development banks

Central cooperative banks

Central land development banks

Primary land development banks

Primary Agri credit societies

Primary urban banks

The Players

RBI SBI DFHI Ltd. (Amalgamation of Discount & Finance House in India & SBI Gilts in 2004) Commercial Banks, Cooperative Banks & Primary Dealers are allowed to borrow and lend. Specified All-India Financial Institutions, Mutual Funds and certain specified entities are allowed to access to Call/Notice money market only as lenders. Individuals, Firms, Companies, corporate bodies, trusts & institutions can purchase the treasury bills, commercial papers and certificate of deposits.

Call Money market

Commercial Bills market

Acceptance Market

Treasury Bill market

CALL MONEY MARKET

Call money market is that part of the national money market where the day to day surplus funds, mostly of banks are traded in. They are highly liquid, their liquidity being exceed only by cash. The loans made in this market are of the short term nature The money that is lent for 1 day in this mkt. is known as Call Money, & if it exceeds 1 day (but less than 15 days), it is referred to as Notice Money.

Commercial bills market

A commercial bill is one which arises out of a genuine trade transaction, i.e., credit transaction. As soon goods are sold on credit , the seller draws a bill on the buyer for the amount due. Thus a Bill of exchange contains a written order from the creditor to the debtor to pay a certain sum, to a certain person after a certain period generally 3 to 6 months.

ACCEPTANCE MARKET

The acceptance market refers to the market where short-term genuine trade bills are accepted by financial intermediaries. All the trade bills cannot be discounted easily because the parties to the bills may not be financially sound. In such case bills are accepted by financial intermediaries like banks. In London there are specialist firms called acceptance houses which accepts bills drawn by traders and impart greater marketability to such bills

Discount market
Discount market refers to the market where shortterm genuine trade bills discounted by financial intermediaries like commercial banks The seller has to wait until maturity of the bill for getting payment . But the presence of a bill market enables him to get payment immediately. The seller can ensure payment immediately by discounting the bill with some financial intermediary by paying a small amount of money called discount rate On the date of maturity, the intermediary claims the amount of the bill from the person who has accepted the bill.

A variety of instrument are available in a developed money market In India till 1986, only a few instrument were available

Treasury bills

Commercial Bills

Money at call

Promissory notes

Some new instruments are:

Commercial Papers

Banker's Acceptance

Certificate of deposit

Money Market

Repurchase Agreement

Repo instrument

(T-bills) are the most marketable money market security They are issued with three-month, six-month and one-year maturities

T-bills are purchased for a price that is less than their par(face) value; when they mature, the government pays the holder the full par value T-Bills are so popular among money market instruments because of affordability to the individual investors
T-Bills

are issued by Govt. of India against their short term borrowing requirements with maturities ranging between 14 to 364 days.
All

these are issued at a discount-to-face value. For eg: a T-Bill of Rs.100 face value issued for Rs.91.50 gets redeemed at the end of its tenure at Rs.100
Types of treasury bills through auctions

91- Day, 182- day, 364- day, and 14- day TBs

COMMERCIAL BILLS

Funds for working capital required by commerce and industry are mainly provided by banks through cash credits, overdrafts, and purchase/discontinuing of commercial bills. BILL OF EXCHANGE
The financial instrument which is traded in the bill market of exchange. It is used for financing a transaction in goods that takes some time to complete. It shows the liquidity to make the payment on a fixed date when goods are bought on credit. Accordingly to the Indian Negotiable Instruments Act, 1881, it is a written instrument containing as unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Commercial

Paper (CP) is an unsecured money market instrument issued in the form of a promissory note typically financing day to day operation with a fixed maturity period by a company approved by RBI.
It

was introduced in India in 1990 with a view to enabling highly rated corporate borrowers/ to diversify their sources of short-term borrowings and to provide an additional instrument to investors

Only company with high credit rating issues CP

CPs

shall be issued for a min. of 7 days and the maximum of 6 months

CP

is very safe investment because the financial situation of a company can easily be predicted over a few months.

CONTD
The aggregate amount of CP from an issuer shall be within the limit as approved by its Board of Directors or the quantum indicated by the Credit Rating Agency for the specified rating, whichever is lower. As regards FIs, they can issue CP within the overall umbrella limit fixed by the RBI i.e., issue of CP together with other instruments viz., term money borrowings, term deposits, certificates of deposit and intercorporate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.

Participants

Issuer All the private sector co., public sector units, non-banking company etc.

Investors Individuals, banks, corporates and also NRIs.

RBI guidelines

A co. can issue CPs only if it has:

A tangible worth of not less than Rs. 10 cr. As per the latest balance sheet; Minimum current ratio of 1.33:1; A fund-based working capital limit of Rs. 25 crore or more; A debt serving ratio closer to 2 The company is listed on stock exchange

o
o o o

CP shall be issued in multiples of Rs. 25 lakh Can be issued min. for 7days and max. 6 months The issue of CP cannot be underwritten in any case.

Certificates

of Deposit (CDs) were introduced in India in

1989.
Certificate

of Deposit (CD) are short-term deposit instruments issued by banks and financial institutions to raise large sum of money
CDs

are issued in the form of usance promissory notes.

They

are negotiable and are marketable form bearing specific face value, maturity and interest rate.
CDs

in physical form are freely transferable by endorsement and delivery.

ISSUER Scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs) Select all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI. SUBSCRIBERS CDs are available for subscription by individuals, corporations, trusts, associations and NRIs.

RBI guidelines

The denomination of CDs should be in multiples of Rs. 5 lakh subject to a minimum size of an issue to a single investor being Rs. 25 lakh. The CDs are short-term deposit instruments with maturity period ranging from 3 months to one year. CDs are freely transferable by endorsement and delivery but only after 45 days of the date of issue to the primary investor. They are issued in the form of usance promissory notes payable on a fixed date without days of grace. Banks have to maintain CRR and SLR on the issue price of CDs and reports them as deposits to the RBI.

Repo

is a form of overnight borrowing and is used by those who deal in government securities
They

are usually very short term repurchases agreement, from overnight to 30 days of more
The

short term maturity and government backing usually mean that Repos provide lenders with extremely low risk
Repos

are safe collateral for loans

bankers acceptance (BA) is a short-term credit investment created by a non-financial firm

A

BAs are guaranteed by a bank to make payment

Acceptances

are traded at discounts from face value in the secondary market

BA acts as a negotiable time draft for financing imports, exports or other transactions in goods

This is especially useful when the credit worthiness of a foreign trade partner is unknown

Disadvantage of Money Market

Existence of unorganised sector Absence of integration Diversity in money rate of interest Absence of bill market Limited instruments Limited secondary market

Integration

of unorganized sector with the organized

sector Widening of call Money market Introduction of innovative instrument Offering of Market rates of interest Promotion of bill culture Entry of Money market mutual funds Setting up of credit rating agencies Adoption of suitable monetary policy Establishment of DFHI Setting up of security trading corporation of India ltd. (STCI)