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52571347-Money-Market4

52571347-Money-Market4

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Published by Binoy Mehta

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Published by: Binoy Mehta on Sep 07, 2012
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05/13/2014

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T.Y.BFM MONEY MARKET
Introduction
The financial system of any country is the backbone of the economy of thatcountry. The financial systems of all economies are broadly sub-divided intomoney market, capital market, gilt-edged securities market and foreignexchange market. The money market, capital market and the gilt securitiesmarket provides avenues to the surplus sector such as householdinstitutions in the economy to deploy their funds to the deficit sector such ascorporate and government sectors to mobilize funds for their requirements.The operations in the money market are generally short-term (upto 1 year) innature, in capital market short-term to long term and in gilt securities marketgenerally long-term. However, in an integrated financial system, theoccurrence of an event in one market of the financial system will have animpact on the other market system.The Indian money market is a market for short-term money and financialasset that are close substitutes for money, which are close substitute for money, with the short-term in the Indian context being for 1 year. Theimportant feature of the money market instruments is that it is liquid and can be turned quickly at low cost.The money market is not a well-defined place where the business istransacted as in the case of capital markets where all business is transacted ata formal place, i.e. stock exchange. The money market is basically atelephone market and all the transactions are done through oralcommunication and are subsequently confirmed by written communicationand exchange of relative instruments. The money market consist of many
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T.Y.BFM MONEY MARKET
sub-market such as the inter-bank call money, bill discounting, treasury bills,Certificate of deposits (CDs), Commercial paper (CPs), RepurchaseOptions/Ready Forward (REPO or RF), Inter-Bank participation certificates(IBPCs), Securitised Debts, Options, Financial Futures, Forward RateAgreement (FRAs), etc. which collectively constitute the money market.Participants in money market
Lenders
:
These are the entities with surplus lendable funds like-Banks (Commercial, Co-operative & Private)Mutual FundsCorporate Entities with bulk lendable resources of minimum of Rs. 3 crores per transactionFinancial Institutions
Borrowers:
 
These are entities with deficit funds and includes the ones as above.
FEATURES OF MONEY MARKET
1.
It is a collection of market for following instruments- Callmoney, notice money, repos, term money, treasury bills,commercial bills, certificate of deposits, commercial papers
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T.Y.BFM MONEY MARKET
inter-bank participation certificates, inter-corporate deposits,swaps, etc.
2.
The sub markets have close inter- relationship & freemovement of funds from one sub-market to another.
3.
A network of large number of participants exists which will addgreater depth to the market.
4.
Activities in the money market tend to concentrate in somecentre, which serves a region or an area. The width of such areamay vary depending upon the size and needs of the market itself.
5.
The relationship that characterizes a money market isimpersonal in character so that competition is relatively pure.
6.
Price differentials for assets of similar type will tend to beeliminated by the interplay of demand & supply.
7.
A certain degree of flexibility in the regulatory frameworexists and there are constant endeavours for introducing a newinstruments / innovative dealing techniques.8.It is a wholesale market & the volume of funds or financialassets traded are very large i.e. in crores of rupees.
The functions of money market are as follows:
(a)Providing an equilibrating mechanism for leveling out theshort-term surpluses and deficits.
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