INDIAN MONEY MARKET

CONTENTS .

WHAT IS MONEY MARKET? As per RBI defines Money Market as A market for short terms financial assets that are close substitute for money. A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. year). facilitates the exchange of money in primary and secondary market .  . traded.  The money market is a mechanism that deals with the lending and borrowing of short term funds (less than one year).

).. Insurance cos. MFs. cost. PDs. State govt. large corporate investors..  . funds. It includes financial institutions and intermediaries (RBI. investors.  It doesn t actually deal in cash or money but deals with substitute of cash like trade bills. Banks.Continued««. govt. provident cos. NRIs. promissory notes & govt papers which can converted into cash without any loss at low transaction cost.

only through oral communication.FEATURES OF MONEY MARKET?  It is a market purely for short-terms funds or shortfinancial assets called near money. only.   . relevant document and written communication transaction can be done. done. It deals with financial assets having a maturity period less than one year only. money. In Money Market transaction can not take place formal like stock exchange.

companies).Continued««. The component of Money Market are the commercial banks.   . acceptance houses & NBFC (Non(Non-banking financial companies). brokers. it comprises of several submarket like call money market. acceptance & bill market..  Transaction have to be conducted without the help of brokers. It is not a single homogeneous market. market.

OBJECTIVE OF MONEY MARKET?  To provide room for overcoming short term deficits. market. adequately at reasonable cost.   . To provide a reasonable access to users of shortshortterm funds to meet their requirement quickly. deficits. cost. To enable the central bank to influence and regulate liquidity in the economy through its intervention in this market.

Condition of money market before Pre reform period (Before 1991) 1991) Sukkmoy Chakravarthi Committee( 1985) 1985) Vaghul Committee( 1985-91) 1985-91) . RBI.FINANCIAL SECTOR REFORMS o o o o Object of financial sector reforms by Government of India & RBI.

cash reserve requirement (CRR) of banks.The aims of the Reserve Bank s operations in the money market are: To ensure that liquidity and short term interest rates are maintained at levels consistent with the monetary policy objectives of maintaining price stability. change in bank rates and at times. The Reserve Bank of India influence liquidity and interest rates through a number of operating instruments . conduct of open market operations (OMOs). The market comes within the direct preview of the Reserve Bank of India regulations.The Role of the Reserve Bank of India in the Money Market: The Reserve Bank of India is the most important constituent of the money market. foreign exchange swap operations. repos.     . To ensure an adequate flow of credit to the productive sector of the economy and To bring about order in the foreign exchange market.

Factors affecting Money Markets Interest Rate/ Yield.Fiscal Deficit/ Govt. borrowing InflationCyclical trends in the Economy Forex reserves/ Exchange Rate .RBI Monetary Policy Inflation.Market expectations Yield& risk premium Mss/ Liquidity .

InterInter-bank term money Repo instrument Banker's Acceptance . Commercial papers.MONEY MARKET INSTRUMENTS [Sec. 45U(b)]        Treasury bills Certificate of deposit. Money at call and short notice in the call loan market.

when they mature. T-Bills are so popular among money market instruments because of affordability to the individual investors. investors. T-bills are purchased for a price that is less than their par(face) value. six-month threesixand one-year maturities.Treasury Bills (T-Bills) (T    (T(T-bills) are the most marketable money market security. They are issued with three-month. value. onematurities. . the value. security. government pays the holder the full par value.

.    They are highly liquid as they are of shorter tenure and there is a possibility of an interbank repos on them. and are eligible for inclusion in the securities for SLR purpose Recently T-Bills are also being issued Tfrequently under the Market Stabilization Scheme (MSS). They have an assured yield. .Continued«. low transaction cost.

Advantages of investing in TTBills:    No Tax Deducted at Source (TDS) Zero default risk as these are the liabilities of GOI Liquid money Market Instrument Active secondary market thereby enabling holder to meet immediate fund requirement.   .

The 91-day T-bills are auctioned every week on 91TWednesdays.Amount & Auction  Treasury bills are available for a minimum amount of Rs. 182 days and 364-day T-bills are auctioned 364Tevery alternate week on Wednesdays. Treasury bills are also issued under the Market Stabilization Scheme (MSS).000 and in multiples of Rs. The Reserve Bank of India issues a quarterly calendar of T-bill auctions T- . They are available in both Primary and Secondary market. 25.25. Treasury bills are issued at a discount and are redeemed at par.000.

.Conclusion Lastly concluded that the Indian money market plays a vital role in the Indian financial system. The government securities are traded in a short term period. This market regulates by the primary dealers where the STCI & SBIDFHI plays a pivotal role. It mobilizing the financial assets in the various sectors and traded by the banks and other financial intermediaries. It is a short term market where the liquidity is very high. So this market is very much needed for the financial institutions to meet the need of short term debt in the market. These institution regulates the market.

Thank you .