ANKIT RAO

20397016

MONEY MARKET – MEANING, IMPORTANCE, & INSTRUMENTS HELD

FUNCTIONS AND IMPORTANCE OF MONEY MARKET

• maintains a balance between supply of and demand for money for

transactions that are done for a short period
• Money market promotes the growth and development of the economy
• Helps in implementation of monetary policies
• Money market aid in formation of capital

INSTRUMENTS

money market instrument is an investment mechanism that allows banks,

businesses, and the government to meet large, but short-term capital needs at a
low cost

Examples of Money Market Instrument

 Banker’s Acceptance
 Treasury Bills
 Repurchase Agreements
 Certificate of Deposits 
 Commercial Papers

Features of Money Market Instruments

 Liquidity: They are considered highly liquid as they are fixed-income

securities which carry short maturity periods of a year or less.
 Safety: Since the issuers of money market instruments have strong credit
ratings, it automatically means that the money instruments issued by them
will also be safe.
 Discounted price: One of the main features of money market instruments
is that they are issued at a discount on their face value.
REPO RATE:
Repo rate is the rate at which the central bank of a country (Reserve Bank of
India in case of India) lends money to commercial banks in the event of any
shortfall of funds. Repo rate is used by monetary authorities to control inflation.

BANK RATE:

A bank rate is the interest rate a nation's central bank charges to its domestic
banks to borrow money. The rates central banks charge are set to stabilize the
economy. In the United States, the Federal Reserve System's Board of
Governors set the bank rate, also known as the discount rate.

MSF (Marginal Standing Facility)

Marginal Standing Facility (MSF) is a provision made by the RBI through
which scheduled commercial banks can obtain liquidity overnight, in the event
that inter-bank liquidity completely dries up.