Project Report

ON

MONEY MARKET OF INDIA

SUBMITTED TO

SWAMI SAHAJANAND COLLEGE OF COMMERCE AND MANAGEMENT

UNDER THE GUIDANCE OF

VEDIKA HARIYANI

IN PARTIAL FULFILMENT OF THE REQUIRMENT OF THE AWARD OF DEGREE OF

BACHELOR OF BUSINESS ADMINISTRATION (BBA)
OFFERED BY
MAHARAJA KRISHNAKUMARSINHJI BHAVNAGAR UNIVERSITY
BHAVNAGAR

PREPARED BY :

NAME: SID NO: SEAT NO :

SHIVAM JOSHI 3031206820200043 75140059

BBA ( SEMESTER -4 )
 Student’s Declaration

I hereby declare that the Project Report titled “MONEY MARKET OF INDIA” is a result of my own
work and my indebtedness to other work publications, references, if any, have been duly
acknowledged. If I am found guilty of copying from any other report or published information and
showing as my original work, or extending plagiarism limit, I understand that I shall be liable and
punishable by the university, which may include “Fail” in examination or any other punishment that
university may decide.

SID NO: Name Signature

3031206820200043 SHIVAM JOSHI
Place : Bhavnagar
Date : 9/04/2022

PREFACE

Management today is must for day-to-day life. Management is the integral part of the business. In
this world, all things need proper management for its success. Project report plays an important role
as a part of the curriculum of BBA in SWAMI SAHAJANAND COLLEGE OF COMMERCE &
MANAGEMENT. Here we have tried our level bet to represent our project report and explain our
understanding level through it.

ACKNOWLEDGEMENT
“If you pick the right people and give them the opportunity to spread their wings and put
compensation as a carrier behind it, you almost do not have to manage them”

- Jack Welch

We are very thankful to our mentor VEDIKA HARIYANI for the inspiration and for initiating diligent efforts and
expert guidance in course of our study and completion of the project.

Our genuine sense of gratitude goes to SWAMI SAHAJANAND COLLEGE OF COMMERCE &
MANAGEMENT and specially to our Principal, Dr. HETAL MEHTA who gave us a chance to brighten our
academic qualification that provided us this opportunity to have a practical knowledge of relevant fields.
 TABLE OF CONTENT

SR No. Particulars Page number

1 Introduction 06
2 Literature Review 14
3 Research Methodology 18
4 Data Analysis 21
5 Findings & Recommendations 25
6 Conclusion 28
7 Bibliography 29
 CHAPTER :-01

Introduction
 The financial system of any country is the backbone of the economy of that country. The financial systems of
all economies are broadly sub-divided into money market, capital market, gilt-edged securities market and
foreign exchange market. The money market, capital market and the gilt securities market provides avenues
to the surplus sector such as household institutions in the economy to deploy their funds to the deficit sector
such as corporate and government sectors to mobilize funds for their requirements.

 The operations in the money market are generally short-term (up to 1 year) in nature, in capital market short-
term to long term and in gilt securities market generally long-term. However, in an integrated financial
system, the occurrence of an event in one market of the financial system will have an impact on the other
market system.
 The Indian money market is a market for short-term money and financial asset that are close substitutes for
money, which are close substitute for money, with the short-term in the Indian context being for 1 year. The
important 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 is transacted as in the case of capital
markets where all business is transacted at a formal place, i.e. stock exchange. The money market is basically
a telephone market and all the transactions are done through oral communication and are subsequently
confirmed by written communication and exchange of relative instruments. The money market consist of
many sub-market such as the inter-bank call money, bill discounting, treasury bills, Certificate of deposits
(CDs), Commercial paper (CPs), Repurchase Options/Ready Forward (REPO or RF), Inter-Bank participation
certificates (IBPCs), Securitised Debts, Options, Financial Futures, Forward Rate Agreement (FRAs), etc.
which collectively constitute the money market.
 HISTORY AND EVOLUTION:-

 After the fall of the Bretton Woods System, the government of the Great Britain undertook various steps to
prevent the downslide of the Pound and instituted new internal controls. One of the control measures was the
creation of the Dollar premium market to discourage the direct foreign investment. However, this created
opportunities for financial ingenuity by the British merchant bankers.

 To avoid Dollar premium, Parallel Loans were introduced. Here, the parties were required to exchange the
principal on the value date. During the life of the contract, each party was to pay the interests on the currency
it had received. The next crucial step was the introduction of the Back-to-back Loans, in which the loan was
directly arranged between two parent companies in different countries and structured under one agreement.
Parallel Loans were strictly designed to satisfy the letter of the law. That is why four entities – the parent and
the subsidiary in each of the two different countries – had to be involved in structuring each loan. In Back-to-
back loans, the intermediary level of the subsidiary was eliminated. Back-to-back loans tested the legal waters
and did not face any problems.In Back-to-back Loans, only one documentation covered the transaction.These
two instruments played an important role in paving the way for the emergence of the Swaps.

Currency Swaps:-

 The breakdown of the Bretton Woods System had opened up a whole new area of the foreign exchange
trading. In a deregulated market, banks could offer products to the clients, collect a fee, and improve their
profit margins. Gaining entry into the Parallel and the Back-to-back Loans was easy for the banks. But two
problems began to emerge.

 One was the old issue of the paperwork, except that increased volume of the loans gave a new urgency to its
resolution. The other problem was related to accounting. Both of the above mentioned loans were recorded as
two separate transactions. This ignored the contingent nature of the loansm, inflated the balance sheets and
distorted the accounting ratios that were used in analysing the financial health of the banks. The answer,
drawing heavily on the experience of the swap network, came in the form of the Currency Swaps.
 In a Currency Swap, the notional amount of the trade was designated as off-balance-sheet, and payment of
interest by each party was made contingent upon the other party’s performance. With the principal amount of
the Currency Swap no longer subject to the counterparty default risk, it was possible to classify swaps as off-
balance-sheet instruments. Incorporating the cash-flow structure of the Back-to-back Loans into the legal
notion of the contingency took the Currency Swap one step further from being a concept and made it a
financial instrument as well.

 The early Currency Swap deals were not disclosed to the public because of the proprietary nature. In 1981, the
World Bank and IBM announced a Currency Swap deal which was well publicised and gave an impetus to the
swap market.

Interest Rate Swaps:-

 Building on the two important features of the Currency Swaps - contingency of the payments and the off-
balance-sheet nature of the transaction - international banks created and then expanded the idea of the IRS
market. Although IRS were created based on the concept of the Currency Swaps, a different set of
circumstances brought about their explosion. The Euromarket, where the Eurodollars are traded, is the
birthplace of the IRS.

Euromarket:-

 Beginning in the '50s, the Socialist governments began to deposit their hard currency holdings in European
banks because they were concerned that, in the Cold War environment of the '50s, the US would freeze their
assets. However these deposits were not enough to create and sustain a large market. It was the Dollar
holdings of the US corporations that created the Euromarket, as it was against the outflow of the US funds
that the Interest Equalisation Tax Act (IETA) was passed (IETA created a strong incentive for the US
investors to keep their Dollars in Europe). The Euromarket was created because of the higher rates of return in
 Europe and it was sustained due to the tax differentials that could not be arbitraged because of the
sovereignty. Euromarket was a concept of the laissez-faire. Transactions in this market are mostly wholesale
in the nature and the interest rates are heavily influenced by the availability of, and demand for the funds.
Loans in this market are basically variable in nature and if necessary, on a roll over basis with fixed maturities
and non-prepayment clauses.

 As the '80s began, interest rates in the US market reached unprecedented high levels and this trend split into
the rate-sensitive Euromarket. So the corporations sought hedging vehicles against interest rate fluctuations.
This was the starting point of the IRS. Here, the parties agree to the exchange of the interest payments
calculated on a notional amount. However, interest payments in the IRS are based on the different modes of
the same currency.

 Thus, we can see that IRS or more precisely the swap market was born as insurance market directly related to
the Euromarket loans. This insurance market fuelled and sustained the swap market. Swaps became insurance
vehicle of the borrowers because their premiums were borrowed.

Secondary Factors in the Development of the Swap Market:-

 As international barriers to financial markets began to disappear, swap dealers were able to switch between
different indexes and different markets. By arbitraging capital and credit markets, they were able to borrow
at the best index available and then swap to the desired index.

 Heavy borrowing by the US government and government agencies in the '80s played a major role in the
development of the swap market. Borrowing at the floating rates and swapping to the fixed rates met the
needs of the corporations and in effect added to the depth and the liquidity of the swap market.

 Taking a view on the future direction of the interest rates, swaps can be proved to very attractive
instrument, and under a variety of yield curve conditions, they are among the cheapest to transact.
Speculative trading of the swaps added enormously to the depth and liquidity of the market.

FEATURES OF MONEY MARKET:-

 i. It is a collection of market for following instruments- Call money, notice money, repos, term money,
treasury bills, commercial bills, certificate of deposits, commercial papers inter-bank participation
certificates, inter-corporate deposits, swaps, etc.
ii. The sub markets have close inter- relationship & free movement of funds from one sub-market to
another.
iii. A network of large number of participants exists which will add greater depth to the market.
iv. Activities in the money market tend to concentrate in some centre, which serves a region or an area.
The width of such area may vary depending upon the size and needs of the market itself.
v. The relationship that characterizes a money market is impersonal in character so that competition is
relatively pure.
vi. Price differentials for assets of similar type will tend to be eliminated by the interplay of demand &
supply.
vii. A certain degree of flexibility in the regulatory framework exists and there are constant endeavours for
introducing a new instruments / innovative dealing techniques.
viii. It is a wholesale market & the volume of funds or financial assets traded are very large i.e. in crores of
rupees.
ix. Money market basically refers to a section of the financial market where financial instruments with high
liquidity and short-term maturities are traded. It is used by participants as a means for borrowing and lending
in the short term with maturities that usually range from overnight to just under a year.
x. Over-the-counter trading is done in the money market and it is a wholesale process. The money market is an
unregulated and informal market and not structured like the capital markets, where things are organized in a
formal way.
xi. Withdrawing money from the money market is easier. Money markets are different from capital markets as
they are for a shorter period of time while capital markets are used for longer time periods. 
xii. Due to short maturity term, the instruments of money market are liquid and can be converted to cash easily
and thus are able to address the need of the short term surplus fund of the lenders and short term borrowing
requirements of the borrowers.  
xiii. Money Markets help in effective implementation of the RBI’s monetary policy Money markets help to
maintain demand and supply equilibrium with regard to short term funds.
xiv. They cater to the short term fund requirement of the governments.
xv. They help in maintaining liquidity in the economy.

MONEY MARKET INSTRUMENTS:-

 1.Call Money
 Call/Notice money is an amount borrowed or lent on demand for a very short period. If the period is more
than one day and upto 14 days it is called 'Notice money' otherwise the amount is known as Call money'.
Intervening holidays and/or Sundays are excluded for this purpose. No collateral security is required to cover
these transactions

Features

 The call market enables the banks and institutions to even out their day-to-day deficits and surpluses of
money.
 Commercial banks, Co-operative Banks and primary dealers are allowed to borrow and lend in this market for
adjusting their cash reserve requirements.
 Specified All-India Financial Institutions, Mutual Funds and certain specified entities are allowed to access
Call/Notice money only as lenders. It is a completely inter-bank market hence non-bank entities are not
allowed access to this market.
 Interest rates in the call and notice money market are market determined.
 In view of the short tenure of such transactions, both the borrowers and the lenders are required to have
current accounts with the Reserve Bank of India.
 It serves as an outlet for deploying funds on short term basis to the lenders having steady inflow of funds.

2.TREASURY BILLS MARKET

 A treasury bill is a promissory note or a finance bill issued by the government under discount for a
specified period(as stated in the bill).

 Types of Treasury Bills

 In India there are two types of treasury bills

 Ordinary or regular treasury bills

  Ad hoc known as “ad hocs”.

 Types of treasury bill through auction

 91-Day

 182-Day

 364-Day

 14-Day

 In the short term, the lowest risk category instruments are the treasury bills.
RBI issues these at a prefixed day and a fixed amount.
These are four types of treasury bills.

i. 14-day Tbill- maturity is in 14 days. Its auction is on every Friday of every week. The notified amount
for this auction is Rs. 100 crores.

ii. 91-day Tbill- maturity is in 91 days. Its auction is on every Friday of every week. The notified amount
for this auction is Rs. 100 crores.

iii. 182-day Tbill- maturity is in 182 days. Its auction is on every alternate Wednesday (which is not a
reporting week). The notified amount for this auction is Rs. 100 crores.

iv. 364-Day Tbill- maturity is in 364 days. Its auction is on every alternate Wednesday (which is a
reporting week). The notified amount for this auction is Rs. 500 crores.

v. The usual investors in these instruments are banks who invest not only to part their short-term
surpluses but also since it forms part of their SLR investments, insurance companies and FIs.
These Tbills, which are issued at a discount, can be traded in the market. Most of the time, unless the
investor requests specifically, they are issued not as securities but as entries in the Subsidiary General
 Ledger (SGL), which is maintained by RBI. The transactions cost on Tbill are non-existent and trading
is considerably high in each bill, immediately after its issue and immediately before its reedemtion.

vi. The returns on Tbills are dependent on the rates prevalent on other investment avenues open for
investors. Low yield on Tbills, generally a result of high liquidity in banking system as indicated by
low call rates, would divert the funds from this market to other markets. This would be particularly so,
if banks already hold the minimum stipulated amount (SLR) in government paper.

3. INTER-BANK TERM MONEY:-


Inter bank market for deposits of maturity beyond 14 days and upto three months is referred to as the term
money market. The specified entities are not allowed to lend beyond 14 days. The development of the
term money market is inevitable due to the following reasons .

 Declining spread in lending operations

 Volatility in the call money market
 Growing desire for fixed interest rates borrowing by corporate
 Move towards fuller integration between forex and money market
 Stringent guidelines by regulators/management of the institutions .

4. CERTIFICATE OF DEPOSITS MARKET:-

 After treasury bills, the next lowest risk category investment option is the certificate of deposit Allowed in
1989, CDs were one of RBI's measures to deregulate the cost of funds for banks and FIs. A CD is a negotiable
promissory note, secure and short term (upto a year) in nature. A CD is issued at a discount to the face value,
the discount rate being negotiated between the issuer and the investor. Though RBI allows CDs upto one-year
CDs are issued by banks and FIs mainly to augment funds by attracting deposits from corporates, high net
worth individuals, trusts, etc. the issue of CDs reached a high in the last two years as banks faced with
reducing deposit base secured funds by these means. The foreign and private banks, especially, which do not
have large branch networks and hence lower deposit base use this instrument to raise funds.
5. INTER-CORPORATE DEPOSITS MARKET:-

 Apart from CPs, corporates also have access to another market called the inter- corporate deposits (ICD)
market. An ICD is an unsecured loan extended by one corporate to another. Existing mainly as a refuge for
low rated corporates, this market allows funds surplus corporates to lend to other corporates. Also the better-
rated corporates can borrow from the banking system and lend in this market. As the cost of funds for a
corporate in much higher than a bank, the rates in this market are higher than those in the other markets. ICDs
are unsecured, and hence the risk inherent in high. The ICD market is not well organised with very little
information available publicly about transaction details .

6. COMMERCIAL PAPER MARKET :-

 CPs are negotiable short-term unsecured promissory notes with fixed maturities, issued by well rated
companies generally sold on discount basis. Companies can issue CPs either directly to the investors or
through banks / merchant banks (called dealers). These are basically instruments evidencing the liability of
the issuer to pay the holder in due course a fixed amount (face value of the instrument) on the specified due
date. These are issued for a fixed period of time at a discount to the face value and mature at par.

Ideally, the discount rates on CPs ought to be determined by the demand and supply factors in the money
market and the interest rates on the other hand competing money market instruments such as certificate of
deposits (CDs), commercial bills and treasury bills. It has been noticed that in a comparatively stable and low
rate conditions in the money market, the discount rates in the CP markets do somewhat soften whereas in the
tight money market situation it may not be possible even for a best rated company to issue CPs at lower rates
than the lending rates on it's banks lines of credit. This is partly for the reason that banks could also firm up
the lending rates during such periods. The maturity management of CPs should also affect the CP rates. It has
been observed that in a period of prolong low and steady money market rates there is no significant different
between the discount rates if CPs for 90 and 180 days.
 7. READY FORWARD CONTRACT :-

 It is a transaction in which two parties agree to sell and repurchase the same security. Under such an
agreement the seller sells specified securities with an agreement to repurchase the same at a mutually decided
future date and a price. Similarly, the buyer purchases the securities with an agreement to resell the same to
the seller on an agreed date in future at a predetermined price. Such a transaction is called a Repo when
viewed from the prospective of the seller of securities (the party acquiring fund) and Reverse Repo when
described from the point of view of the supplier of funds. Thus, whether a given agreement is termed as Repo
or a Reverse Repo depends on which party initiated the transaction.

 The lender or buyer in a Repo is entitled to receive compensation for use of funds provided to the
counterparty. Effectively the seller of the security borrows money for a period of time (Repo period) at a
particular rate of interest mutually agreed with the buyer of the security who has lent the funds to the seller.
The rate of interest agreed upon is called the Repo rate. The Repo rate is negotiated by the counterparties
independently of the coupon rate or rates of the underlying securities and is influenced by overall money
market.

 The Repo/Reverse Repo transaction can only be done at Mumbai between parties approved by RBI and in
securities as approved by RBI (Treasury Bills, Central/State Government securities).

8. Commercial Paper:-

 Bills of exchange are negotiable instruments drawn by the seller (drawer) of the goods on the buyer (drawee)

of the goods for the value of the goods delivered. These bills are called trade bills. These trade bills are called

commercial bills when they are accepted by commercial banks. If the bill is payable at a future date and the

seller needs money during the currency of the bill then he may approach his bank for discounting the bill. The

maturity proceeds or the bank will receive face value of discounted bill, from the drawee. If the bank needs

fund during the currency of the bill then it can rediscount the bill already discounted by it in the commercial
 bill rediscount market at the market related to discount rate .The RBI introduced the Bills Market scheme

(BMS) in 1952 and the scheme was later modified into New Bills Market scheme (NBMS) in 1970.

 Under the scheme, commercial banks can rediscount the bills, which were originally discounted by them, with

approved institutions (viz., Commercial Banks, Development Financial Institutions, With the intention of

reducing paper movements and facilitate multiple rediscounting, the RBI introduced an instrument called

Derivative Usance Promissory Notes (DUPN). So the need for physical transfer of bills has been waived and

the bank that originally discounts the bills only draws DUPN. These DUPNs are sold to investors in

convenient lots of maturities (from 15 days upto 90 days) on the basis of genuine trade bills, discounted by the

discounting bank.
 CHAPTER :-02

Review of Literature: -
 Reuters (2009) Article: India call money ends near reverse repo rate, cash abundant. India overnight
money rates brought down to the reverse repo rate of 3.25% on Wednesday these cash surplus in the system
will help the banks meet their reserve needs comfortably. Cheaper money usable at the security borrowing and
lending agreement (CBLO) also reduce the pressure on the inter-bank cash rates. On that day banks were
guided to report their position to RBI once in two weeks. This alteration created an expectation on liquidity
resistance. And some analysts said that the central bank may start rolling back the liquidity as early as on
December 2009, as they already pressured the consumer prices could pose significant inflationary threat to the
economy, in the thick of easy cash conditions Overnight rates are supported around the reverse repo rate
because banks holding the surplus funds could also break up with the same central bank at that rate in its daily
liquidity adjustment auctions.

 Rastogi Nikhil (2008) Article: Money Market Integration in India: A Time Series Study Says that
Indian financial markets have achieved much from the highly controlled pre-liberalization era. He denotes that
the main focus is on achieving efficiency, which is the trade mark of any developed financial market. This
research paper tests the efficiency and extent of integration between financial markets observed at the short
end of the market. The rates are mainly taken for the purpose of the study of, the compound call market rate,
CD (Certificate of Deposit) rate, CP (Commercial Paper) rate, 91-day T-bill (Treasury bill) rate and 3-month
forward premium.
 The results, though promising, are mixed. In his research he concluded that although markets have achieved
integration in some of its branches, but they still have to attain full integration. It has absolute implications on
the monetary policy of the Reserve Bank of India. (RBI) since the changes in one market (gilt market) can be
used to coordinate the other market (forex market).
 Rusty Sadananda (2007) Article: Market efficiency and financial markets integration in India in their
work examined the impact of economic reforms on the integration of various segments of the financial market
in India over the time series tools during the period from March 2006 to March 2012. The major findings
were: (I) various sector of the financial market in India have achieved market efficiency, (ii) the 91-day
Treasury bill rate is the suitable 'base rate' of the financial sector in India, (iii) the financial markets in India
are broadly integrated at the short-end of the market, and (iv) the long- end of the market is amalgamate with
the short-end of the market. From the above monetary policy should rely more on interest rate and asset price
channels to control inflation.

 Recommendations of Three Committees: The issue of whether non-bank participants should

constitute part of call/notice/term money market could be traced first in the Report of the Committee to
Review the Working of the Monetary System (Chairman: S. Chakravarty) in 1985. Since then, the Report of
the Working Group on the Money Market (Chairman: N. Vague) in 1987 and the Report of the Committee on
Banking Sector Reforms (Chairman: M. Narasimha) in 1998 had also deliberated on this issue. It needs to be
appreciated that the particular set of recommendations from these three Committees have to be assessed
against the specific objectives for which these Committees had been constituted as well as the differing initial
conditions reflecting the state of Indian financial market which were prevailing at that particular point of time.

 Sukhmoy Chakravarty Committee (1982) Articles: - Recommended for call money market.
Examined the study of call money market for India was first recommended by the Sukhmoy Chakravarty.
Committee was set up in 1982 to review the working of the monetary system. They felt that allowing
additional nonbank participants into the call market would not dilute the strength of monetary regulation by
the RBI, as resources from non-bank participants do not represent any additional resource for the system as a
whole, and their participation in call money market would only imply a redistribution of existing resources
from one participant to another. In view of this, the Chakravarty Committee recommended that additional
nonbank participants may be allowed to participate in call money market.

 The Vaghul Committee (1990) Articles: - Introduction of money market instruments. The Vaghul
Committee (1990), while recommending the introduction of a number of money market instruments to
broaden and deepen the money market, recommended that the call markets should be restricted to banks. The
other participants could choose from the new money market instruments, for their short - term requirements.
One of the reasons the committee ascribed to keeping the call markets as pure inter-bank markets was the
distortions that would arise in an environment where deposit rates were regulated, while call rates were
market determined.

 Narasimham Committee (1998) Articles: - observation on call/money/term money market examined

the Narasimham Committee II (1998) concurred with the Vaghul Committee as it also observed that
call/notice/term money market in India, like in most other developed markets, s hould be strictly restricted to
 banks. It, however, felt that exception should be made for Primary Dealers (PDs) who have been acting as
market makers in the call money market and are formally treated as banks for the purpose of their inter-bank
transactions and, therefore, they should remain as part of call money market. With regard to non-banks, it
expressed concern that these participants "are not subjected to reserve requirements and the market is
characterized by chronic lenders and chronic borrowers and there are heavy gyrations in the market". It felt
that allowing non-bank participants in the call market "has not led to the development of a stable market with
liquidity and depth and the time has come to undertake a basic restructuring of call money market". Like the
Vaghul Committee, it had also suggested that the non-bank participants should be given full access to bill
rediscounting, Commercial Paper (CP), Certificates of Deposit (CDs), Treasury Bills (TBs) and Money
Market Mutual Funds (MMMFs) for deploying their short-term surpluses.

 Kotter and Mosser (2002) Articles: - The Monetary Transmission Mechanism: Some Answers and
Further Questions, examined the Monetary policy’s effect appears to be somewhat weaker than they were in
past decades. Financial Innovation is one possible cause of this change but not the only one improved
inventory management and the conduct of monetary policy itself are others. Thank to financial innovation and
institutional changes in housing finance the housing sector is no longer on the leading edge of the
transmission mechanism. However, judging from the evidence presented for the United. Kingdom, the role of
housing assets on households’ balance sheets warrants further study.

 Dr. Y.V. Reddy (2002) Article: - Parameters of Monetary Policy in India attempted to focus on the
conduct of monetary policy and highlighted some of the immediate tasks. In case, there is interest in an
overview of theory and analytics, especially in the context of role of monetary policy in revitalizing growth in
India. The conduct of monetary policy in India would continue to involve the constant rebalancing of
objectives in terms of the relative importance assigned, the selection of instruments and operating
frameworks, and a search for an improved understanding of the working of the economy and the channels
through which monetary policy operates. Among the unrealized medium-term objectives of reforms in
monetary policy, the most important is reduction in the prescribed CRR for banks to its statutory minimum of
3.0 per cent. The movement to 3.0 per cent can be designed in three possible ways, viz., the traditional way of
pre-announcing a time-table for reduction in the CRR; reducing CRR as and when opportunities arise as is
being done in recent years; and as a one-time reduction from the existing level to 3.0 per cent under a package
of measures. The Reserve Bank influences liquidity on a day-to-day basis through LAF and is using this
facility as an effective flexible instrument for smoothening interest rates. The operations of non-bank
participants including FIs, mutual funds and insurance companies that were participating in the call/notice
money market are in the process of being gradually reduced according to pre-set norms. Such an ultimate goal
of making a pure inter-bank call money market is linked to the operationalization of the CCIL and attracting
non-banks also into an active repo market. The effectiveness of LAF thus will be strengthened with a pure
inter-bank call/notice money market in place coupled with growth of repo market for non-bank participants
 Reserve Bank of India (2010) :- In his discussion paper “Deregulation of Savings bank Interest rates: A
Discussion paper” try to put the pros and cons of deregulation of savings deposits interest rates in India.
Regulation of interest rates imparts rigidity to the instrument/product as rates are either not changed in
response to changing market conditions or changed slowly. This adversely affects the attractiveness of a
product/instrument. In the case of savings bank deposits, its interest rate has remained unchanged at 3.5 per
cent since March 1, 2003 even as the Reserve Bank’s policy rates and call rates (representing a proxy for
operative policy rate as at a time, only one rate – either the repo rate or the reverse repo rate – is operative
depending on liquidity conditions) moved significantly in either direction. Regulation of savings deposits
interest rate has not only reduced its relative attractiveness but has also adversely affected the transmission of
monetary policy. For transmission of monetary policy to be effective, it is necessary that all rates move in
tandem with the policy rates. This suggests that regulation of the interest rate on savings deposits has impeded
the monetary transmission and that deregulation of interest rate will help improve the transmission of
monetary policy. In sum, deregulation of savings deposit interest rates has both pros and cons. Savings deposit
interest rate cannot be regulated for all times to come when all other interest rates have already been
deregulated as it creates distortions in the system. International experience suggests that in most of the
countries, interest rates on savings bank accounts are set by the commercial banks based on market interest
rates.

Conclusion: -
 The call money market decreases the repo rate, but the bank manages the cheaper money of their surplus
breakdown through reverse repo rate.
 The bank has to report this issue to RBI within to week.
 Rastogi says that the Indian money market has achieved more from the preliberalization era.
 In his research he concluded that although markets have achieved integration in some of its branches, but they
still have to attain full integration.
 He said that the main objective or focus is on creating efficiency or growth of money market.
 The monetary policy should rely more on interest rate and asset price channels to control inflation.
 The Chakravarty Committee recommended the additional nonbank participants may be allowed to participate
in call money market.
 The Vaghul Committee introduce the money market and broaden the instrument of money market. The money
market is usually for short-term period i.e. less than one year.
 THE Narasimham Committee study the observation of call and term money.
 Interest are collected periodically by the depositor by depositing.
 Because of change in RBI regulation there is change the rate of interest.
 Because of inflation there is change in the rate of interest it affects the rate of interest.
 CHAPTER:-03

Research Methodology: -

 RESEARCH:-
 Methodology is an essential part of research to find answer to the research objective that initiate the same.
Therefore, it figures as an important part of the study. This chapter focuses on the design and research method
utilized in the study. In addition, the procedure followed to collect, capture, process and analyzed data is
presented. The research approach used in the study is presented below: -

 Sample Unit: -
 Sample size determination is the process of choosing the number of respondents/observations to include in a
statisticalsample. It is an important feature of a research study because on the basis of sample size data is
collected and interpreted to give accurate and appropriate results. The correct and appropriate sample size is
said to give more accurate results.

 Type of research: -
 My research is based on descriptive research. It helps to know qualitative and quantitative aspects of study. It
studies the characteristics of Indian Money Market and see to it that how we can bring more agencies in
India. It is used because this topic is being studies only to understand the concept and the problem it faces.
However, my research also studies Review of Literature which acts as a base for Descriptive study.

 Sampling Objective of Study: -

 The objective of the project are as follows: - To study about INDIAN MONEY MARKET AND its related
aspects like its types and the instruments.
 To study about the history, participant, organizational structure of INDIAN MONEY (MONETORY)
MARKET. To find out the investors saving preferences.
 To study about overcoming the short-term deficit.
 To enable liquidity in the market.

 Sampled size: -
 Sample size determination is the process of choosing the number of respondents/observations to include in a
statistical sample. It is an important feature of a research study because on the basis of sample size data is
collected and interpreted to give accurate and appropriate results. The correct and appropriate sample size is
said to give more accurate results. For example, in a census, data is collected from the entire population.
Therefore, the sample size is equal to population of the country. Keeping in mind the rate of non-response
and non-availability of respondents, the sample size was taken between 25 – 50 science students of Mumbai
University. It was Random sampling method that was considered to decide the sample size. Due to the
sample size being small there may be slight inaccuracy of data that can be rectified by further study. (100
respondents).

 SAMPLE DESIGN: -
 The sample design used to represent the survey data is in the formof Pie-Charts and Bar Charts based on the
80 respondents of the survey. Probability sampling was used to collect responses.
 Data Collection: -
 Data for the study was collected from the primary as well as secondary sources.

 SECONDARY SOURCE OF DATA COLLECTION: -

 The secondary source of data collection is assessed to gain information and knowledge about our research
problem that may be previously discussed by some other researcher. The secondary is referred to know what
has already been discussed and what more scope can be there for research. The secondary data is taken from
selective websites and from online publication of some researchers. The secondary data was useful for the
study of Review of Literature. We could study various aspects of different researchers which gave us an idea
about the factors being previously discussed and also the conclusions drawn from them. It also gave us an
insight on what more could be studied to solve the research problem.

 Data Analysis: -
 The application of statistical tools and techniques for the data collected by means of questionnaires is been
classified tabulated analyzed and summarized with the help of statistical tool percentage method.

 Limitation of the study: -

 The study is based on limited scope of area.
 Whole market cannot be collected.
 CHAPTER:-04

DATA ANALYSIS &

INTERPRETATION
 Interpretation and presentation :-
1.) What is your annual income ?

SR. No PARTICULAR FREQUENCY PERCENTAGE

1 Below 1 lakh 7 7%

2 Between 1 lakh to 3 10 10%

lakhs

3 Between 3 lakh to 4 15 15%

lakhs

4 Above 5 lakhs 38 38%

5 No income 30 30%

 Interpretation :- There were total 100 responses out of which 7% respondents have annual income of below
1 lakh 10% respondents have an annual between 1 lakh to 3 lakh , between 3 lakhs to 5 lakh were of 15% ,
above five lakh were 38% and for no income there are 30% .

2.)How do you invest in your saving ?

SR.NO PARTICULAR FREQUENCY PERCENTAGE

1 Invest in capital market 49 49%

2 Invest in money market 54 54%

mutual fund
3 Invest in bank 60 60%

4 Invest in real estate 20 20%

  Interpretation :- From the above data we can see that 49% of the respondents invest in capital market
54% of respondent invest in money market mutual fund, 60% invest in banks and 20% invest in real estate .

3.)Do you have any knowledge about money market instrument ?

SR..NO PARTICULAR FREQUENCY PERCENTAGE

1 Yes 75 75%

2 NO 8 8%

3 Maybe 6 6%

4 Heard but don’t know 11 11%

 Interpretation: - From the above analysis we can see that 75% have heard about money market and knows
about that, while there are 6% people who aren't sure about this, 11% people have heard about the term
money market but have no knowledge about that and then about 8% of the respondents don't know anything
about money market.

4.)How long would you like to hold your money market instrument?

Sr.NO PARTICULAR FREQUENCY PERCENTAGES

1 LONG TERM METHOD 78 78%

2 SHORT TERM METHOD 22 22%

 INTERPRETATION :- From the above data 78% of the people like to keep money market instruments for
long term method while other people which are about 22% keep it for short term method . we can see that
them are willing to keep their investment for long term.

5.)How much risk will you be willing to take ?

 SR.NO PARTICULR PREQUENCY PERCENTAGES

1 LOW 13 13%

2 AVERAGE 19 19%

3 MEDIUM 51 51%

4 HIGH 17 17%

 INTERPRETATION :- From the above data we can see that 13% respondents will take low level of risk,
while 17% of respondents will take high amount of risk. 19% of respondents will take risk at average level.
Most of the respondents are willing to take average number of risks.

6.) In your opinion what is your expected rate of return ?

SR.NO PARTICULAR FREQUENCY PERCENTAGE

1 BELOW10% 17 17%

2 BETWEEN 10 TO 20% 32 32%

3 BETWEEN 20 TO 30% 43 43%

4 ABOVE 30% 8 8%

 INTERPERTATION :- From the above data we can see that 17% respondents expect returns below 10%.
32% respondents expect Returns between 10%-20%. 43% respondents expect returns between 20%-30%. 8%
respondents expect returns above 30%.

7.)How would you rate your experience with Indian money market ?

SR.NO PARTICULAR FREQUENCY PERCENTAGE

1 AVERAGE 18 18%

2 POOR 10 10%

3 GOOD 58 58%
 4 EXCELLENT 14 14%

 INTERPRETATION :- From the above analysis we can see that 10% respondents didn't have a good
experience with Indian market while 14% respondents had excellent experience with Indian Market.

8.)Is recession had affected your investment decision ?

SR.NO PARTICULAR FREQUENCY PERCENTAGES

1 YES 86 86%

2 NO 14 14%

 INTERPRETATIONS :- From the above data we can see that 86% respondents experienced that recession
has affected their Investment decision while 14% respondents were not affected by recession.

9.) For fixed income what types of instrument would prefer ?

SR.NO PARTICULAR FREQUENCY PERCENTAGES

1 Corporate bond 51 51%

2 Treasury bills 57 57%

3 Government securities 53 53%

4 Commercial papers 47 47%

 INTERPRETATIONS :- From the above data we can see that 51% of respondent invest in corporate bonds,
57% in treasury bills, 53% in government securities and 47% of respondents invest in commercial paper.

10.) What will be you course of action during recession ?

SR.NO PARTICULARS FREQUENCY PERCENTAES

1 BUY 39.2 39.2

2 SELL 23.7 23.7

3 HOLD 37.1 37.1

 Interpretation; - From the above analysis we can see that 39.2% of the respondents buy the instruments at
the time of recession, 37.1% of the respondents sells the instruments, and 23.7% of the respondents hold the
instruments .

CHAPTER:-05

Finding &
RECOMMENDATIONS
 FINDINGS

 There may be change in the price because of change in demand or change in the economic condition due to
this price can increase or decrease as the demand changes or there can be no change in price even the demand
changes.

 Yes, there can be change in the economic condition as in the above itself say that change in the economic
condition tends to change the price, therefore there can be positive, negative, or no change in the economic
growth.

 Recession may have positive or negative impact on economy.

 One can overcome the short-term deficit by managing the funds.

 Managing the funds means there can be issue of money market securities or, One can do nothing i.e. (under
come of short term deficit).

 From the above question at the time of recession, the investor may liquidate their investment from the market,
purchase the instrument or do nothing (hold).

 Recession have an impact on the liquidity.

 Money market instruments is a minimal risk or no risk instruments in the market as they are for shorter period
i.e. (a year or less than one year).it has low risk or no risk instrument in the market.

 The instrument is divided in various risk categories elevated risk, minimal risk, or no risk instruments.

 The Indian money market was controlled by tight controls and administered interest rate structure up to late
1980s. However, following the policy measures during the early 1990s the money market has become broad
based with the enlargement of participants and instruments, and change in liquidated conditions is quickly
transmitted. The reform measures have greatly contributed to the development of inter-linkages; increasing
liquidity across various segments of the money market. An enabling environment has thus been created
whereby the monetary authority can gradually switch away from the direct instruments of control to indirect
methods like open market operation, including repos. The market determined interest rate is gradually
emerging as an important intermediate target with the ultimate objective of achieving price stability and
economic growth.

RECOMMENDATIONS:-

 Few suggestions relevant to the development of money market in India are enumerated below:

 There should be a mechanism to make the call range bound which may reduce uncertainty and provide
confidence to the bankers for lending/borrowing. In the context, it is emphasized that Repos and Reverse
Repos conducted by RBI has the potential to set the floor and ceiling in the call money market.

 Besides, Repo mechanism, call money market, needs to be supplemented by Open Market Operation (OMO).
OMO can influence interest rate as well as volumes in the market.

 Non-bank segment should be brought under the same regulation on par with the banks early as possible so
that level playing field is created.
 Transparency should be ensured in money market transaction. There should be screen based trading with two-
way quotes for each money market instruments.

 The lock-in period of CDs and CPs should be completely removed in a phase manner. Retailing of
government papers should be encouraged. The primary dealers can play a role in this context.

 Currently FIIs are allowed in government dated securities in primary as well as secondary market. More FII
participation could be encouraged.

 Money Market Mutual Funds should be set up by various banks and institutions. This would increase the
retail participation in the market.

 There should be a mechanism to make the call range bound which may reduce uncertainty and provide
confidence to the bankers for lending/borrowing. In the context, it is emphasized that Repos and Reverse
Repos conducted by RBI has the potential to set the floor and ceiling in the call money market.

 Besides, Repo mechanism, call money market, needs to be supplemented by Open Market Operation (OMO).
OMO can influence interest rate as well as volumes in the market.

 Non-bank segment should be brought under the same regulation on par with the banks early as possible so
that level playing field is created.

 Transparency should be ensured in money market transaction. There should be screen based trading with two
way quotes for each money market instruments. The lock-in period of CDs and CPs should be completely
removed in a phase manner.
 CHAPTER:-06

CONCLUSION

 The money market is a vibrant market, affecting our everyday lives. As the shortterm market for money,
money changes hands in a short time frame and the players in the market have to be alert to changes, up to
date with news and innovative with strategies and products.

 The withdrawal of non-bank entities from the inter-bank call-money market is linked to the improvement of
settlement systems.
 Any time-bound plan for the evolution of a pure inter-bank call/notice money market would be ineffective
till the basic issue of settlements is addressed.
  In brief, various policy initiatives by the Reserve Bank have facilitated development of a wider range of
instruments such as market repo, interest rate swaps, CDs and CPs.

 This approach has avoided market segmentation while meeting demand for various products.

 These developments in money markets have enabled better liquidity management by the Reserve Bank.

 The money market specializes in debt securities that mature in less than one year.

 Money market securities are very liquid, and are considered very safe. As a result, they offer a lower return
than other securities.

 The easiest way for individuals to gain access to the money market is through a money market mutual fund.

Bibliography

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R .S . AGGARWAL EMERGING MONEY MARKET

M .S. GOPALAN INDIAN MONEY MARKET STRUCTURE , OPERATION AND
DEVELOPMENT

PRASAMA CHANDRA FINANCIAL MANAGEMENT

P.K.BANDGAR SECURITIES MANAGEMENT AND PORTFOLIO

MANAGEMENT

Interest Rate Swaps NASSER SABER

RBI SITE http://rbi.org.in

SBI DHFI SITE http://sbidhfi.com/

INDIAN INSTITUTE OF
BANKING AND FINANCE http://www.iibf.org.in

GOOGLE