Q.

5 Briefly explain the components and composition of money

market?
Or
Explain thre structure of money market along with sub-markets/
components?

ANS: - Money market is a short-term credit market which deals with relatively liquid and quickly
marketable assets, such as, short-term government securities, treasury bills, bills of exchange etc.
Structure of Indian
Structure Money
of Indian Market
Money Market
market

Organisational Unorganised
Sector Sector

Commercial Non-Banking Cooperative

Reserve bank Saving Bank
Bank Companies Bank
of India

Scheduled Non-
Commercial Scheduled
Bank Bank

Public
Indian Bank
Sector
bank

State Bank Group

Nationalised Banks
 Organized Sector-:
1. Organised modern sector of Indian money market comprises, (a) Reserve bank of India, (b)
The State Bank of India and its associates’ banks, (c) The Indian Joint Stock Commercial
banks of which 27 scheduled banks have been nationalised, (d) the exchange bank which
mainly finance Indian foreign trade, € cooperative banks, (f) other Special institutions.
2. Non-bank financial institutions such as the LIC, the GIC and subsidiaries, the UTI operate in
this market.
3. Cooperative credit institutions occupy the intermediary position between organised and
unorganised parts of the Indian money market.
Unorganised Sector: -
1. The unorganised sector consists of indigenous banks and money lenders
2. Constituents of money market: - Lenders and Borrowers
Money market is a centre where short-term funds are supplied and demanded. Thus, the main
constituents of money are lenders who demanded short-term credit.
(a) Supply of Funds: - There are two types of main sources of supply of short-term funds in
the Indian money market.
• Unorganised indigenous sectors.
• Organized modern sectors.
(b) Demand for funds: - In the Indian money market, the main borrowers of short-term funds
are: -
• Central Government
• State government
• Local Bodies, Such as municipalities village panchayats etc
• Trade industries farmers exporters & Imports, and
• General public
Sub market of organised money markets
The organised sectors of Indian money market can be future classified into the following sub markets.
It has the following money markets instruments.

Instrument
InstrumentofofIndian
IndianMoney
MoneyMarket
market

Commercial Treasury Bills Commercial Certificate of

call money
market bills papers deposit
1. Call money markets: - It is a market for very short terms funds immerging from 1-14 days. It
is the market where usually commercial bank participate for maintain their cash reserve
required funds are bored and land minimum of one day to the maximum of 14 days without
any collateral securities. It has two segments.
• Call or overnight market
• Short notice market
2. Treasury Bill: - These are short terms promissory note issued by government of India (G.O.I)
at a discount usually for period of 91 days. The bills are also issued for very long period like
14 days,182 and 364 days. These are issued by RBI on option based and the buyers of these
bills are banks, financial institutions, individual for minimum subscriptions of at least 1 lakh.
These bills are issued to meet the short-term requirement of government
3. Commercial Bill Market: - These are the bills of exchange drawn by the traders and
business organisations for credit transactions. The seller will draw a bill upon buyer for the
value of goods purchased and the buyer accepts the bills where by the bill where by the bills
becomes legal document acknowledging the debt. It is a negotiable instrument. These trade
bills are considered as liquid assets as they can converted into by re-discounting with banks.
4. Certificate of deposit: - RBI has introduced certificates of deposits seme in June 1989 the
object is to wider the range of money market and to give the investors further opportunity to
deploy their funds. CD’S are nothing but deposits receipts issued by bank against the
depositor made by individual company and other institution. NRI can also subscribe for these
series on non-repartition. These are barer certificates and are negotiable in the market.
5. Commercial paper: - This instrument is introduced in June 1990 is are unsecured promissory
noted issued by corporate entity to meet their working capital requirements. It represents a
promise by the borrowing company to repay the loan it is specified period. This are issued at
a discount to the face value where the discount is determined by the market.