( )

IT SUBMITED BY

0520165023

UNDER THE GUIDENCE OF

DR.PANDI DEVI M.A.,M.PHIL.,P.HD

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 ACKNOWLEDGEMENT

I would like to express my special thanks to my class professor

DR.MRS.PANDI DEVI, who gave the golden opportunity to do this wonderful
project of MONEY MARKET OPERATION, also helped me in completing my
project. I came to know about so many new thinks I really thankful to them.
Secondly I would like to thank my parents and friends who helped me a lot in
finalizing this project within the limited time frame.

N.SARAN
B.voc.,(banking and financial service)

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 CERTIFICATE

This is to certify that the dissertation entitled “MONEY MARKET OPERATION”

by N.SARAN for the award of the degree of bachelor of vocational in banking
and financial service by the Alagappa university is her original work and that it
has not previously formed the basis for the award of any degree , diploma ,
associateship , fellowship or any other similar title and it represent wholly his
independent work.

DATE :
PLACE :

SIGNATURE OF THE GUIDE

3
 DECLARATION

I here by declare that the dissertation entitled “MONEY MARKET OPERATION”

submitted for degree of bachelor of vocational in banking and financial service
is my original work and that it has not previously formed the basis for the
award of any degree , diploma , associateship, fellowship or any other similar title.
This work was done under supervision of DR.M. PANDI DEVI M.A.,M.PHIL.,PH.D

PLACE :
DATE :

SIGNATURE OF THE CANDIDATE

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Contents:
1. Meaning and Features of Money Market
2. Institutions of the Money Market
3. Instruments of Money Market
4. Working of Money Market
5. Functions of Money Market
6. Characteristics of an Undeveloped Money Market
7. Characteristics of an Developed Money Market

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1. Meaning and Features of Money Market:
The money market is a market for short-term instruments that are close substitutes
for money. The short term instruments are highly liquid, easily marketable, with little
change of loss. It provides for the quick and dependable transfer of short term debt
instruments maturing in one year or less, which are used to finance the needs of
consumers, business agriculture and the government.

The money market is not one market but is “a collective name given to the various
form and institutions that deal with the various grades of near- money.” In other
words, “it is a network of market that are grouped together because they deal in
financial instruments that have a similar function in the economy and are to some
degree substitutes from the point of view of holders.” Thus the money market consists
of call and notice market, commercial bills market, commercial paper market,
treasury bills market, inter-bank market and certificates of deposit market. All these
markets are closely interrelated so as to make the money market. It is a wholesale
market where large number of financial assets or instruments are traded.

The money market is divided into direct, negotiated, or customers’ money market and
the open or impersonal money market. In the former, banks and financial firms supply
funds to local customers and also to larger centres such as London for direct lending.

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In the open money market, idle funds drawn from all-over the country are transferred
through intermediaries to the New York City market or the London market.

These intermediaries comprise the Federal Reserve Banks in the USA or the Bank of
England in England, commercial banks, insurance companies, business corporations,
brokerage houses, finance companies, state and local government securities’ dealers.
The money market is a dynamic market in which new money market instruments are
evolved and traded and more participants are permitted to deal in the money market.

2. Institutions of the Money Market:

The various financial institutions which deal in short term loans in the money market
are its members.

They comprise the following types of institutions:

1. Central Bank:
The central bank of the country is the pivot around which the entire money market
revolves. It acts as the guardian of the money market and increases or decreases the
supply of money and credit in the interest of stability of the economy. It does not itself
enter into direct transactions. But controls the money market through variations in
the bank rate and open market operations.

2. Commercial Banks:
Commercial banks also deal in short-term loans which they lend to business and
trade. They discount bills of exchange and treasury bills, and lend against promissory
notes and through advances and overdrafts.

3. Non-bank Financial Intermediaries:

Besides the commercial banks, there are non-bank financial intermediaries which
lend short-term funds to borrowers in the money market. Such financial
intermediaries are savings banks, investment houses, insurance companies,
provident funds, and other financial corporations.

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4. Discount Houses and Bill Brokers:
In developed money markets, private companies operate discount houses. The
primary function of discount houses is to discount bills on behalf of other. They, in
turn, form the commercial banks and acceptance houses. Along with discount houses,
there are bill brokers in the money market who act as intermediaries between
borrowers and lenders by discounting bills of exchange at a nominal commission. In
underdeveloped money markets, only bill brokers operate.

5. Acceptance Houses:
The institution of acceptance houses developed from the merchant bankers who
transferred their headquarters to the London Money Market in the 19th and the early
20 the century. They act as agents between exporters and importers and between
lender and borrower traders. They accept bills drawn on merchants whose financial
standing is not known in order to make the bills negotiable in the London Money
Market. By accepting a trade bill they guarantee the payment of bill at maturity.

However, their importance has declined because the commercial banks have
undertaken the acceptance business. All these institutions which comprise the money
market do not work in isolation but are interdependent and interrelated with each
other.

3. Instruments of the Money Market:

ADVERTISEMENTS:

The money market operates through a number of instruments.

1. Promissory Note:
The promissory note is the earliest types of bill. It is a written promise on the part of
a businessman today to another a certain sum of money at an agreed future data.
Usually, a promissory note falls due for payment after 90 days with three days of
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grace. A promissory note is drawn by the debtor and has to be accepted by the bank
in which the debtor has his account, to be valid. The creditor can get it discounted
from his bank till the date of recovery. Promissory notes are rarely used in business
these days, except in the USA.

2. Bill of Exchange or Commercial Bills:

Another instrument of the money, market is the bill of exchange which is similar to
the promissory note, except in that it is drawn by the creditor and is accepted by the
bank of the debater. The creditor can discount the bill of exchange either with a broker
or a bank.

There is also the foreign bill of exchange which becomes due for payment from the
date of acceptance. The rest of the procedure is the same as for the internal bill of
exchange. Promissory notes and bills of exchange are known as trade bills.

3. Treasury Bill:
But the major instrument of the money markets is the treasury bill which is issued for
varying periods of less than one year. They are issued by the Secretary to the Treasury
in England and are payable at the Bank of England. There are also the short-term
government securities in the USA which are traded by commercial banks and dealers
in securities.

In India, the treasury bills are issued by the Government of India at a discount
generally between 91 days and 364 days. There are three types of treasury bills in
India— 91 days, 182 days and 364 days.

4. Call and Notice Money:

There is the call money market in which funds are borrowed and lent for one day. In
the notice market, they are borrowed and lent up to 14 days without any collateral
security. But deposit receipt is issued to the lender by the borrower who repays the
borrowed amount with interest on call.
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In India, commercial banks and cooperative banks borrow and lend funds in this
market but mutual funds and all-India financial institutions participate only as
lenders of funds.

5. Inter-bank Term Market:

This market is exclusively for commercial and cooperative banks in India, which
borrow and lend funds for a period of over 14 days and up to 90 days without any
collateral security at market-determined rates.

6. Certificates of Deposits (CD):

Certificates of deposits are issued by commercial banks at a discount on face value.
The discount rate is determined by the market. In India the minimum size of the issue
is Rs.25 lakhs with the minimum subscription of Rs.5 lakhs. The maturity period is
between 3 months and 12 months.

7. Commercial Paper (CP):

Commercial papers are issued by highly rate companies to raise short-term working
capital requirements directly from the market instead of borrowing from the banks.
CP is a promise by the borrowing company to repay the load at a specified date,
normally for a period of 3 months to 6 months. This instrument is very popular in the
USA, UK, Japan, Australia and a number of other countries. It has been introduced in
India in January 1990.

4. Working of the Money Market:

The money market consisting of commercial banks, discount houses, bill brokers,
acceptance houses, non-bank financial houses and the central bank operates through
the bills, securities, treasury bills, government securities and call loans of various
types. As the money market consists of varied types of institutions dealing in different
types of instruments, it operates through a number of sub-markets.

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First, the money market operates through the call loan market. It has been defined
as “a market for marginal funds, for temporarily unemployed or unemployable
funds.” In this market the commercial banks use their unused funds to lend for very
short periods to bill brokers and dealers in stock exchange.
In developed countries, even big corporations lend their dividends before distribution
to earn interest for a very short period. The central bank also lends to commercial
bank is for very short periods. Such loans are mostly for a week even for a day or a
night and can be recalled at a very short notice.

That is why a short period loan is known as call loan or call money market. Bill brokers
and stock brokers who borrow such funds use them to discount or purchase bills or
stocks. Such funds are borrowed at the “call rate” which is generally one per cent
below the bank rate.

But this rate varies with the volume of funds lent by the bank. If the brokers are asked
to pay off loans immediately, then they are forced to get funds from large corporations
and even from the central bank at high interest rate.

Second, the money market also operates through the bill market. The bill market is
the short-period loan market. In this market, loans are made available to businessmen
and the government by the commercial banks, discount houses and brokers. The
instruments of credit are the promissory notes. Internal bills of exchange and treasury
bills.

The commercial banks discount bills of exchange, lend against promissory notes or
through advances or overdrafts to the business community. Similarly, the discount
houses and bills brokers lend to businessmen by discounting their bills of exchange
before they mature within 90 days. On the other hand, government borrows through
the treasury bills from the commercial banks and non-bank financial institutions.

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Third, the money market operator through the collateral loan market for a short
period. The commercial banks lend to brokers and discount houses against collateral
bonds, stock, securities, etc. In case of need, commercial banks themselves borrower
from the large banks and the central bank on the basis of collateral securities.

Finally, the other important sub-market through which the money market operates is
the acceptance market. The merchant bankers accept bills drawn on domestic and
foreign traders whose financial standing is not known. When they accept a domestic
or foreign trade bill, they guarantee its payment at maturity. In recent years, the
commercial banks have also stared the acceptance business.

5. Functions of a Money Market:

A money market performs a number of functions in an economy.

1. Provides Funds:
It provides short-term funds to the public and private institutions needing such
financing for their working capital requirements. It is done by discounting trade bills
through commercial banks, discount houses, brokers and acceptance houses. Thus the
money market helps the development of commerce, industry and trade within and
outside the country.

2. Use of Surplus Funds:

It provides and opportunity to banks and other institutions to use their surplus funds
profitably for a short period. These institutions include not only commercial banks
and other financial institutions but also large non-financial business corporations,
states and local governments.

3. No Need to Borrow from Banks:

The existence of a developed money market removes the necessity of borrowing by
the commercial banks from the central bank. If the former find their reserves short of
cash requirements they can call in some of their loans from the money market. The

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commercial banks prefer to recall their loans rather than borrow from the central
banks at a higher rate of interests.

4. Helps Government:
The money market helps the government in borrowing short-term funds at low
interest rates on the basis of treasury bills. On the other hand, if the government were
to issue paper money or borrow from the central bank. It would lead to inflationary
pressures in the economy.

5. Helps in Monetary Policy:

A well-developed money market helps in the successful implementation of the
monetary policies of the central bank. It is through the money market that the central
banks is in a position to control the banking system and thereby influence commerce
and industry.

6. Helps in Financial Mobility:

By facilitating the transfer for funds from one sector to another, the money market
helps in financial mobility. Mobility in the flow of funds is essential for the
development of commerce and industry in an economy.

7. Promotes Liquidity and Safety:

One of the important functions of the money market is that it promotes liquidity and
safety of financial assets. It thus encourages savings and investments.

8. Equilibrium between Demand and Supply of Funds:

The money market brings equilibrium between the demand and supply of loanable
funds. This it does by allocating saving into investment channels. In this way, it also
helps in rational allocation of resources.

9. Economy in Use of Cash:

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As the money market deals in near-money assets and not money proper, it helps in
economising the use of cash. It thus provides a convenient and safe way of
transferring funds from one place to another, thereby immensely helping commerce
and industry.

6. Characteristics of an Undeveloped Money Market:

The money markets in the majority of underdeveloped countries are mostly
undeveloped or unorganised. In fact, they are dualistics, both developed and
undeveloped money markets exist side by side. The developed money market consists
of the central bank, the commercial banks, bill broker; discount houses, acceptance
houses, etc.

On the other hand, the undeveloped money market consists of the moneylenders, the
indigenous bankers, traders, merchants, landlords, pawnbrokers, etc. Since the
majority of the people in underdeveloped countries live in rural areas and are poor,
the undeveloped market controls a major portion of the money market.

The main characteristics of such a market are:

1. Personal Touch:
The lenders have a personal touch with the borrowers. The lender knows every
borrower personally in the village because the latter sides there.

2. Flexibility in Loans:
There is no rigidity in loan transactions. The borrower can have more or less amount
of loan according to his requirements depending upon the nature of security or his
goodwill with the moneylender.

3. Multiplicity of Lending Activities:

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Mostly people do not specialise is moneylending alone. They combine moneylending
with other economic activities. A merchant may supply goods on loan instead or
money in cash.

4. Varied Interest Rates:

There is multiplicity of interest rates. Interest rates are much higher than rates in the
developed sector of the money market. The interest rate are not even uniform. The
rate depends on the need of the borrower, the amount of loan, the time for which it is
required and the nature of security. The greater the urgency, the higher will be the
interest rate.

5. Defective System of Accounting:

In the unorganised sector of the money market, the system of maintaining accounts is
highly defecate. Proper accounts are never maintained. Formal receipts are not issued
for interest and the principal repaid by the borrowers. Besides, there is utmost
secrecy in maintaining accounts and lending procedures in the undeveloped money
market. The accounts of the moneylenders are not liable to checking by any higher
authority.

6. Absence of Link with the Developed Money Market:

The undeveloped sector is not linked with the developed sector of the money market
in such countries. The former works independently of the latter and is also not under
the control of the developed market. This has the effect of reducing the volume of
monetary transactions and savings, and prevent their use in productive investments.

7. Characteristics of a Developed Money Market:

The developed money market is a well organised market which has the
following main features:
1. A Central Bank:

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A developed money market has a central banks at the top which is the most powerful
authority in monetary and banking matter. I controls, regulates and guides the entire
money market. It provides liquidity to the money market, as it is the lender of the last
resort to the various constituents of the money market.

2. Organised Banking System:

An organised and integrated banking system is the second feature of a developed
money market. In fact, it is the pivot around which the whole money market revolves.
It is the commercial banks which supply short-term loans, and discount bills of
exchange. They form an important link between the borrowers, brokers, discount
houses and acceptance houses and the central bank in the money market.

3. Specialised Sub-Markets:
A developed money market consists of a number of specialised sub-markets dealing
in various types of credit instruments. There is the call loan market, the bill market,
the treasury bill market, the collateral loan market and the acceptance market, and
the foreign exchange market.

The larger the number of sub-markets, the more developed is the money market. But
the mere number of sub-markets is not enough. What is required is that the various
sub-markets should have a number of dealers in each market and the sub-markets
should be properly integrated with each other.

4. Existence of Large Near-Money Assets:

A developed money market has a large number of near-money assets of various types
such a bills of exchange, promissory notes, treasury bills, securities, bonds, etc. The
larger the number of near-money assets, the more developed is the money market.

5. Integrated Interest-Rate Structure:

Another important characteristic of a developed money market is that it has an
integrated interest-rate structure. The interest rates prevailing in the various sub-
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markets are integrated to each other. A change in the bank rate leads to proportional
changes in the interest rate prevailing in the sub-markets.

6. Adequate Financial Resources:

A developed money market has easy access to financial sources from both within and
outside the country. In fact, such a market attracts adequate funds from both sources,
as is the case with the London Money Market.

7. Remittance Facilities:
A developed money market provides cash and cheap emittance facilities for
transferring funds from one market to the other. The London Money Market provides
such remittance facilities throughout the world.

8. Miscellaneous Factors:
Besides the above noted features, a developed money market is highly influenced by
such factors as restrictions on international transactions, crisis, boom, depression,
war, political instability, etc.

Description:
• Money market consists of negotiable instruments such as treasury bills,
commercial papers. and certificates of deposit. It is used by many participants,
including companies, to raise funds by selling commercial papers in the market.
Money market is considered a safe place to invest due to the high liquidity of
securities.
• The money market is an unregulated and informal market and not structured
like the capital markets, where things are organised in a formal way. Money
market gives lesser return to investors who invest in it but provides a variety of
products.
IMPORTANCE OF MONEY MARKET:
➢ Financing trade :
Money market plays crucial role in financing both internal as
well as international trade. Commercial finance is made available to the
traders through bills of exchange, which are discounted by the bill market.
➢ Financing industry :
Money market helps in securing the short-term loans to meet
their working capital requirements through the system of finance bills ,
commercial papers, etc.
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 ➢ Profitable investment :
Money market enables the commercial banks to use their
excess reserves in profitable investment.
➢ Self-sufficiency of commercial bank:
Developed money market helps the commercial banks to
become self-sufficient.
➢ Help to central bank:
It smoothens the functioning and increases the efficiency
of central bank.
MONEY MARKET INSTRUMENTS :
➢ Call money market
➢ Commercial paper
➢ Treasury bills
➢ Commercial bills
➢ Certificate Of Deposits
➢ Money Market Mutual Funds
➢ The Repo Market
➢ Discount And Finance House Of India
1) Call And Notice Money Market :-
The market for extremely short-period is referred as call
money market. Under call money market, funds are transacted on overnight
basis. The participants are mostly banks. Therefore it is also called Inter-
Bank Money Market. Under notice money market funds are transacted for 2
days and 14 days period. The lender issues a notice to the borrower 2 to 3
days before the funds are to be paid. On receipt of notice, borrower have to
repay the funds. In this market the rate at which funds are borrowed and
lent is called the call money rate.

2)COMMERCIAL PAPERS :
Commercial Papers were introduced in January 1990. The
Commercial Papers can be issued by listed company which have working capital of
not less than Rs. 5 crores. They could be issued in multiple of Rs. 25 lakhs. The
minimum size of issue being Rs. 1 crore. At present the maturity period of CPs ranges
between 7 days to 1 year. CPs are issued at a discount to its face value and redeemed
at its face value.
3)COMMERCIAL BILLS:
• A bill of exchange is drawn by a seller on the buyer to make
payment within a certain period of time. Generally, the maturity period is of
three months. Commercial bill can be resold a number of times during the
usance period of bill.
• - Commercial bills are short term, negotiable and self
liquidating money market instruments with low risk.
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 • Commercial bill can be resold a number of times during
the usance period of bill.
4)TREASURY BILLS (t-bills):
• Commercial bill can be resold a number of times
during the usance period of bill.
• Treasury bills are available for a minimum amount of
Rs. 25,000 and in multiples of Rs. 25,000. Periodic auctions are held for their
Issue.
• At present three types of treasury bills are issued
through auctions, namely 91 day, 182 day and364day treasury bills.
• Interest is determined by market forces
5)CERTIFICATE OF DEPOSIT (CD):
• The scheme of CDs was introduced in 1989 by RBI.
The main purpose was to enable the commercial banks to raise funds from
market.
• CDs are unsecured, negotiable promissory notes
issued at a discount to the face value.
• CDs are issued by Commercial banks and
development financial institutions.
• At present, the maturity period of CDs ranges
from 3 months to 1 year. They are issued in multiples of Rs. 25 lakh subject to a
minimum size of Rs. 1 crore.
6) MONEY MARKET MUTUAL FUNDS (MMMFs):
• - A Scheme of MMMFs was introduced by RBI in
1992. The goal was to provide an additional short-term avenue to individual
investors.
• A money market fund (also called a money market
mutual fund) is an open-ended mutual fund that invests in short-term debt
securities
7)REPO MARKET :
• Repo was introduced in December 1992. Repo
is a repurchase agreement. It means selling a security under an agreement to
repurchase it at a predetermined date and rate.
• Repo transactions are affected between banks
and financial institutions and among bank themselves, RBI also undertake Repo.
UNORGANIZED MONEY MARKET:
The unorganized money market mostly finances
short-term financial needs of farmers and small businessmen. The main constituents
of unorganized money market are:-
• Indgenious Bankers
• Money Lenders
• Non Banking Financial Companies
(NBFCs)
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 01. Indigenous bankers :
• Indigenous bankers are individuals or private
firms who receive deposits and give loans and thereby operate as banks. IBs
accept deposits as well as lend money. They mostly operate in urban areas,
especially in western and southern regions of the country.
• Further their lending operations are
completely unsupervised and unregulated.
02. MONEY LENDER (MLs) :
They are those whose primary business is
money lending. Money lending in India is very popular both in urban and rural
areas. Interest rates are generally high. Large amount of loans are given for
unproductive purposes. The operations of money lenders are prompt, informal
and flexible. The borrowers are mostly poor farmers, artisans, petty traders and
manual workers.
03.Non Banking Financial Companies:
• Chit funds: are savings institutions. It has
regular members who make periodic subscriptions to the fund. The beneficiary
may be selected by drawing of lots. Chit fund is more popular in Kerala and
Tamilnadu. RBI has no control over the lending activities of chit funds.

• Nidhis:
-Nidhis operate as a kind of mutual
benefit for their members only. The loans are given to members at a reasonable
rate of interest. Nidhis operate particularly in South India.
• Finance Brokers:-
They are found in all major
urban markets specially in cloth, grain and commodity markets. They act as
middlemen between lenders and borrowers. They charge commission for their
services.
Players of money market :
• Government :
- The government is the most active player and the
largest borrower in the money market.
• Reserve bank of India:
- The unorganised money market comes under the
direct regulation of RBI. It plays the role of merchant bankers to the government.
• Commercial bank :
- Commercial bank lending and undertaking of
short –term funds and have major impact on interest structure and liquidity position.
Players of money market:

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• Financial institution:
-They lend money to banks by rediscounting
bills of exchange.
• Corporate firms :
– It operates in money market to raise short-
term funds to meet their working capital requirements.
• Dealers:
- It is the intermediaries of the money market.
It is introduced by RBI for developing.

Banking Instruments:
Banking instruments include cheques, drafts, bills of exchange, credit
notes etc. It is a document guaranteeing the payment of a specific amount of money,
either on demand, or at a set time, with the payer named on the document. Cheques:
It is an instrument in writing containing an unconditional order, addressed to a
banker, sign by the person who has deposited money with the banker, requiring him
to pay on demand a certain sum of money only to or to the order of certain person or
to the bearer of instrument.
Sample of a cheque:
There are various types of cheques:
A. Bearer Cheque or open Cheque: When the
words "or bearer" appearing on the face of the cheque are not cancelled, the cheque
is called a bearer cheque. The bearer cheque is payable to the person specified therein
or to any other else who presents it to the bank for payment.
Order Cheque:
When the word "bearer" appearing on the face of a cheque is
cancelled and when in its place the word "or order" is written on the face of the
cheque, the cheque is called an order cheque. Such a cheque is payable to the person
specified
Crossed Cheque:
Crossing of cheque means drawing two parallel lines on the face of the
cheque with or without additional words like "& CO." or "Account Payee" or "Not
Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it
can only be credited to the payee's account.
Multi-City Cheque:

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 A Multi-City Cheque (MCC) is one that can be written by the customer
in favour of his client and is payable at par at all branches of the Bank. These are issued
as Order Cheque.
Payable at Par:
Cheque payable at par means that you can get the full value of the cheque
credited to your account without deduction of any kind of bank charges, when
presented for collection.
Ante-Dated Cheque:
If a cheque bears a date earlier than the date on which it is presented to
the bank, it is called as "ante-dated cheque". Such a cheque is valid up-to 3 months
from the date of the cheque.
Post-Dated Cheque:
If a cheque bears a date which is yet to come (future date) then it is known
as post-dated cheque. A post dated cheque cannot be honoured earlier than the date
on the cheque.
Stale Cheque:
If a cheque is presented for payment after 3 months from the date of the
cheque it is called stale cheque. A stale cheque is not honoured by the bank.

self cheque:
A self cheque is written by the account holder as pay self to receive the
money in the physical form from the branch where he holds his account.
Truncated cheque:
A cheque which is truncated during the course of a clearing cycle, either
by the clearing house or by the bank whether paying or receiving payment,
immediately on generation of an electronic image for transmission, substituting the
further physical movement of the cheque in writing.
Traveller’s Cheque:
Traveller’s checks are often used by individuals who are travelling on
vacation to a different state or foreign countries. The checks were first introduced by
American Express back in 1891. There are three parties to the
cheque
Drawer or Maker
The bank - on whom the cheque is drawn (i.e. the bank with whom the account is
maintained by the drawer)
Payee:
– Payee is the person whose name is mentioned on the cheque to whom or to
whose order the money is directed to be paid.
Demand Drafts:
A demand draft (DD) is a negotiable instrument similar to a bill of exchange. A
bank issues a demand draft to a client (drawer), directing another bank (drawee) or

22
one of its own branches to pay a certain sum to the specified party (payee). The
difference between a cheque and demand draft is given below:
Basis for Comparison Cheque Demand Draft Meaning Cheque is a negotiable
instrument which contains an order to the bank, signed by the drawer, to pay a
certain sum of money to a specified person. Demand Draft is a negotiable
instrument used for the transfer of money from one place to another. Payment
Payable either to order or to bearer. Always payable to order of a certain person.
Issuance Cheque is issued by an individual. Demand Draft is issued by a bank.
Bank Charges No Yes Drawer Customer of the bank. Client Parties Involved
Three Parties- Drawer, Drawee, Payee. Two Parties- Drawer, Payee. Dishonour
Yes, due to insufficient balance or other similar reasons. No Demand
Draft/Payment Order/Travellers Cheques for Rs.50,000/- and above can be
issued only by way of debiting the customer's account or against cheques. Letter
of Credit: The buyer of goods requests his bank to give guarantee that the
payment for the goods will be paid to the seller. In such case the bank issues
Letter of Credit. A. Commercial Letters of Credit  Commercial letters of credit
are mainly used as a primary payment tool in international trade such as
exporting and importing transactions.  These are import letters of credit or
export letters of credit B. Revocable Letters of Credit  Revocable letters of
credit give issuer the amendment or cancellation right of the credit any time
without prior notice to the beneficiary. C. Irrevocable Letters of Credit 
Irrevocable Letters of Credit cannot be amended or cancelled without the
agreement of the credit parties. Unconfirmed irrevocable letters of credit
cannot be modified without the written consent of both the issuing bank and
the beneficiary.
Voucher:
Vouchers are bonds with a certain monetary value, entitling the bearer to
redeem them for specific goods or services. Vouchers are tokens which entitle the
bearer to redeem them for the goods or services specified by the voucher. Bills of
Exchange: A non-interest-bearing written order used primarily in international trade
that binds one party to pay a fixed sum of money to another party at a predetermined
future date. It is a promissory note.
Debit Card:
 A card used to make an electronic withdrawal from funds on deposited in a bank
account or in purchasing goods through EDC (Electronic Data Capture) machine. 
Debit card number is usually of 16 digits.  There are transaction charges beyond 5
numbers of transactions in a month.
Credit Card:
 A card issued by a financial company giving the holder an option to borrow
funds, usually at point of sale. Credit cards charge interest and are primarily used for
short- term financing.  Interest usually begins one month after a purchase is made
and borrowing limits are pre-set according to the individual's credit rating. There are

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annual fee, service charges, late payment charges and other charges attached to a
credit card.
International Debit Card:
 Banks authorised to deal in foreign exchange are permitted to issue
International Debit Cards (IDCs) which can be used by a resident for drawing cash or
making payment to a merchant establishment overseas during his visit abroad.  IDCs
can be used only for permissible current account transactions and the usage of IDCs
shall be within the LRS (Liberalised Remittance Scheme) limit.

International Credit Card:

 Resident individuals maintaining a foreign currency account with an
authorised dealer in India or a bank abroad, as permissible under extant Foreign
Exchange Regulations, are free to obtain International Credit Cards (ICCs) issued by
overseas banks and other reputed agencies.
 The charges incurred against the card either in India or abroad, can be met
out of funds held in such foreign currency account/s of the card holder or
through remittances Forex Card:  A Forex card is a type of prepaid debit card.
Forex cards are useful financial instruments for anyone who is travelling
abroad. Forex cards are safe, convenient and cost-effective. ATM:  Automated
Teller Machine is a computerized machine that provides the customers of banks
the facility of accessing their account for dispensing cash and to carry out other
financial & non-financial transactions without the need to actually visit their
bank branch.  With effect from November 01, 2014, Savings bank account
holders can do a minimum of three transactions (including both financial and
non-financial transactions) free of charge in a month at other bank ATMs in case
of ATMs located in six metro locations, viz. Mumbai, New Delhi, Chennai,
Kolkata, Bengaluru and Hyderabad. At other locations, the savings bank account
holders can transact a minimum of five transactions (including both financial
and non-financial transactions) free of charge in a month at other bank ATMs.
 BSBDA holders will continue to get five free transactions (including both
financial and non-financial transactions) in a month at other bank’s ATM at all
locations including the above six metro locations, subject to other conditions
associated with such accounts.  In case of failed ATM transaction, the customer
should file a complaint with the card issuing bank at the earliest. This process is
applicable even if the transaction was carried out at another bank’s/non-bank’s
ATM.  As per the RBI instructions, banks have been mandated to resolve
customer complaints by re-crediting the customer’s account within 7 working
days from the date of complaint. White Label ATMs (WLAs):  ATMs set up,
owned and operated by non-banks are called White Label ATMs. Non- bank
ATM operators are authorized under Payment & Settlement Systems Act, 2007
by the Reserve Bank of India.
NEFT:

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  National Electronic Funds Transfer (NEFT) is a nation-wide payment system
facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and
corporates can electronically transfer funds from any bank branch to any individual,
firm or corporate having an account with any other bank branch in the country
participating in the Scheme.  There is no limit – either minimum or maximum – on
the amount of funds that could be transferred using NEFT. However, maximum
amount per transaction is limited to Rs.50,000/- for cash-based remittances within
India and also for remittances to Nepal under the Indo-Nepal Remittance Facility
Scheme.  Presently, NEFT operates in hourly batches - there are twelve settlements
from 8 am to 7 pm on week days (Monday through Friday) and six settlements from
8 am to 1 pm on Saturdays. RTGS:  Real Time Gross Settlement means the continuous
(real-time) settlement of funds transfers individually on an order by order basis
(without netting). 'Real Time' means the processing of instructions at the time they
are received.  The RTGS system is primarily meant for large value transactions. The
minimum amount to be remitted through RTGS is Rs. 2 lakhs. There is no upper ceiling
for RTGS transactions.  The RTGS service window for customer's transactions is
available to banks from 9.00 hours to 16.30 hours on week days and from 9.00 hours
to 14:00 hours on Saturdays for settlement at the RBI end. Difference between NEFT
& RTGS: NEFT is an electronic fund transfer system that operates on a Deferred Net
Settlement (DNS) basis which settles transactions in batches. Contrary to this, in the
RTGS transactions are processed continuously throughout the RTGS business hours.
IFSC:
 Indian Financial System Code is an alpha-numeric code that uniquely identifies
a bank- branch participating in the NEFT system. This is an 11 digit code with the first
4 alpha characters representing the bank, and the last 6 characters representing the
branch. The 5th character is 0 (zero).  IFSC is used by the NEFT systemto identify
the originating / destination banks / branches and also to route the messages
appropriately to the concerned banks / branches.
MICR:
 Magnetic Ink Character Recognition is a 9 digit numeric code that uniquely
identifies a bank branch participating in electronic clearing scheme.
 It is used to identify the location of a bank branch. SWIFT:  It stands for Society
for Worldwide Interbank Financial Telecommunication.
 This code is used particularly in international transfer of money between banks.
Most of the Forex related messages are sent to correspondent banks abroad through
SWIFT.
 India was 74th Nation to join SWIFT Network.
 Code consist 8 or 11 character when code is 8 digits. • 4 – bank code • 2 – country
code • 2 – location code • 3 – branch code (optional).
Internet Banking:
Online banking or Internet banking is an electronic payment systemthat
enables customers of a financial institution to conduct financial transactions on
a website operated by the bank. Online banking was first introduced in the early
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1980s in New York. Four major banks— Citibank, Chase Manhattan, Chemical
and Manufacturers Hanover—offered this service. Mobile Banking: Mobile
banking refers to the use of a cell-phone or other cellular device to perform
online banking tasks. Mobile banking services are usually limited to electronic
movement of funds and data retrieval. Core Banking Solution: This is a process
in which the information is stored in a centralized server of the bank, which is
available to all network branches. The advantages of core banking are:
• Information is available to all branches at real time.
• Professional Manpower to be utilized more effectively.
• Transparency.
• Reducing duplication of work.
• Information availability for decision support.
• Cost effective.

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