Instruments of the Money Market 1. Treasury Bills A treasury bill is a government debt of 90 days' duration.

The treasury bills are of two types²ad hoc and ordinary treasury bills. The ad hoc treasury bills are open to the state governments, semi-government organizations, die central bank and the commercial banks. The ordinary treasury bills are open to general public and the banks. 2. Call Loans Call loans arc made for a day and are renewable on a day-to-day basis. 3.Bills of Exchange (Refer Negotiable Instruments) A bill of exchange or "draft" is a written order by the drawer to the drawee to pay money to the payee. A common type of bill of exchange is the cheque , defined as a bill of exchange drawn on a banker and payable on demand. Bills of exchange are used primarily in international trade, and are written orders by one person to his bank to pay the bearer a specific sum on a specific date. Prior to the advent of paper currency, bills of exchange were a common means of exchange. They are not used as often today. A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time a sum certain in money to order or to bearer. (Sec.126) 4.Promissory Notes. A promissory note, referred to as a note payable in accounting, or commonly as just a "note", is a contract where one party (the maker or issuer) makes an unconditional promise in writing to pay a sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under

rather than simply acknowledging that a debt exists. The Life Insurance Corporation of India and Unit Trust of India are allowed to participate. (vii) Treasury Bill. The money market instruments. The banks with 'surplus funds' lend to other banks with 'deficit funds' in the call money market. . Such loans are given to brokers and dealers in stock exchange. (iii) Commercial Paper. call and short notice money and Treasury bills form the most important segment of Indian money market. Among these. 1. The advantages of call loans to banks are: (i) they can take back the money when needed. (vi) Commercial Bills. (v) Money Market Mutual Funds. They differ from IOUs in that they contain a specific promise to pay.Apart from banks. (ii) they can also earn interest by quick lending of idle cash. Call Money Market The Call money market refers to the market for extremely short period loans. (iv) Certificate of Deposit.specific terms. Composition of the Money Market The money market is not a single homogeneous market. It is comprised of several submarkets each one of which specializes in particular type of financing. in India. (ii) Term Money. consists of: (i) Call and Short Notice (upto 14 days). to some extent. in the call money market.

but only to a certain extent. In London. The commercial banks also undertake the acceptance business. The importance of commercial papers viz. bills of exchange and promissory notes has decline now. 3. . The instruments of credit used are promissory notes. The treasury bills are the most important instrument used in the bill market. Bankers acceptance is a method whereby thank adds its good name and reputation to the bill and thereby imparts greater marketability to it Such bills can be discounted anywhere. bills of exchange and treasury bills. Acceptance Market The acceptance market refers to the market for bankers' acceptance. Bill Market The bill market or discount market refers to the market where short dated bills and other papers are bought and sold.. The trade bills cannot be discounted easily anywhere. there are specialist firms called acceptance houses which accept bills drawn by the' traders.2. Its importance has declined in recent years.

Sign up to vote on this title
UsefulNot useful