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MONEY MARKET

BY, Shruthi.G 04 Shashank 55 Roshan 45 Ratnakar Ronak - 22

INTRODUCTION

MONEY MARKET

Money market is a wholesale market of short term debt instrument

It is a part of financial market where instruments with high liquidity and short term maturities (one or less than one year) are traded

FUNCTIONS

To maintain monetary equilibrium To promote economic growth To provide help to Trade and Industry

To help in implementing monetary policy


To help in capital formation Provides non-inflationary sources of finance to government

INSTRUMENTS OF MONEY MARKET


A variety of instrument are available in a developed money market. In India till 1986, only a few instrument were available. They were Treasury bills Money at call and short notice in the call loan market. Commercial bills, promissory notes in the bill market.

New Instruments
Now, in addition to the above the following new instrument are available:

Commercial papers. Certificate of deposit. Inter-bank participation certificates. Repo instrument Banker's Acceptance Repurchase agreement Money Market mutual fund

RELATIONSHIP BETWEEN MONEY MARKET & CENTRAL BK


Presence of developed money market helps the functioning of the Central Bank. Policies of the central bank operates through money market In a well developed money market when central bank throws a stone waves will spread all its shores.

Disadvantages of money market


Purchasing power of money goes down, in case of up in inflation. Dichotomized and loosely integrated Irrational structure of interest rates Highly volatile market Seasonal stringency of loan able funds Lack of funds in the money market Inadequate banking facilities

Recent developments in money market

Integration of unorganized sector with the organized sector Widening of call Money market Introduction of innovative instrument

Offering of Market rates of interest

Promotion of bill culture Entry of Money market mutual funds Setting up of credit rating agencies

Adoption of suitable monetary policy


Setting up of security trading corporation of India ltd. (STCI)

Indian Money Market

Organized Money Market

Unorganized Money Market

RBI

Commercial Banks Lenders Development Banks invest: Institutions Regional Rural Banks Foreign Banks SFCs, DFHI

Money lenders Indigenous Bankers Nidhis & Chit Funds Traders and Friends Brokers & Dealers

FEATURES OF THE INDIAN MONEY MARKET


Dichotomic Structure- Dualistic Nature Seasonality Multiplicity of Interest Rates Lack of Organized Bill Market Absence of Integration High Volatility in Call Money Market Limited Instruments

DRAWBACKS OF THE INDIAN MONEY MARKET


Absence of Integration Multiple Rates of Interest Insufficient Funds Shortage of Investment Instruments Shortage of Commercial Bills Seasonal stringency of money Lack of Organized Banking System . Less Number of Dealers

REFORMS IN INDIAN MONEY MARKET

Govt appointed Sukhomoy Chakravarty in 1984 ,Vaghul working group and Narasimhan Committee (1992) to study & suggest measures to improve the working of Indian financial system.

On the bases of suggestions, following measures have been taken

Money market reforms


Deregulation of the Interest Rate Money Market Mutual Fund Establishment of the DFHI Liquidity Adjustment facility. Repos Electronic reforms-Core, anywhere, RTGS Establishment of the CCIL Development of New Market Instruments

The RBI has widened its control upon the NBFCs. Cheap remittance facility
The All India Bankers Association should act as liaison between various banks in our country so that an effective liaison between various banks government remitted stamp duty on bills which was a main hurdles in the bill system.

THANK YOU!