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Course Syllabus
Ú Financial Mkts in India
6 Marious types of Indian Money Mkts
6 Recent developments in MMs in India
Ú Financial and Banking Institutions
6 Financial Institutions in India
6 Commercial Banks in India
Ú Investment Trust Companies
6 Mutual Funds in India, UTI
Ú pBFCs
6 Vctivities & Role of pBFCs, Regulations



Ú a at is Money Market (MM)
Ú Features
Ú Objectives
Ú Importance of MM
Ú Composition
Ú Instruments of MM
Ú Structure of Indian MM
Ú Disadvantage of MM
Ú C aracteristic features of a developed MM
Ú Recent developments in MM
Ú Summary
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Ú Vs per RBI definitions:
´V market for s ort term financial assets t at
are close substitute for money, and facilitate
t e exc ange of money in primary and
secondary marketsµ.
Ú T e money market is a mec anism t at deals
wit t e lending and borrowing of s ort
term funds (less t an one year).
6 V segment of t e financial market in w ic
financial instruments wit ig liquidity and very
s ort maturities are traded.
Contd«
Contd «
Ú MM doesn·t actually deal in cas or
money but deals wit substitute of cas
like trade bills, promissory notes & govt
papers w ic can be converted into cas
wit out any loss at low transaction cost.
6 MM includes all individuals, institutions and
intermediaries.
Features of Money Market
Ú V market purely for s ort-term funds or
financial assets called near money.
Ú It deals wit financial assets aving a
maturity period less t an one year only.
Ú In Money Markets, transactions cannot
take place informally like stock exc anges
do primarily t roug oral communication
6 peed relevant documents and written
communication transactions.
Continued...
Ú Transactions ave to be conducted
wit out t e elp of brokers.
Ú It is not a single omogeneous market.
6 It comprises of several submarkets like call
money market, acceptance & bill market.
Ú T e components of Money Market are
t e commercial banks, acceptance ouses
& pBFCs (pon-banking Financial
Companies).
 

Ú To provide a parking place to employ s ort
term surplus funds.
Ú To provide room for overcoming s ort term
deficits.
Ú To enable t e central bank to influence and
regulate liquidity in t e economy t roug its
intervention in t is market.
Ú To provide a reasonable access to users of
s ort-term funds to meet t eir
requirements quickly and adequately at a
reasonable cost.
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Ú Development of trade & industry.
Ú Development of capital markets.
Ú Smoot functioning of commercial banks.
Ú Effective Central Bank control.
Ú Formulation of suitable monetary policy.
Ú pon inflationary source of finance to
government.
 

Ú Money Market consists of a number of
sub-markets w ic collectively constitute
t e money market. T ey are:
6 Call / potice Money Market including repos
and reverse repos
6 Commercial Paper
6 Commercial bills market
6 Certificates of Deposit
6 Treasury bill market
6 Money Market Mutual Funds
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Ú V variety of instruments are available in a
developed money market.
Ú In India till 1986, only a few instruments
were available. T ey were:
6 Treasury bills
6 Money at call and s ort notice in t e call loan
market.
6 Commercial bills and promissory notes in t e
bill market.
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Ú pow, in addition to t e above, t e
following new instruments are available:
6 Commercial papers.
6 Certificates of deposit.
6 Inter-bank participation certificates.
6 Repo instruments
6 Bankers· Vcceptance Repurc ase agreement
6 Money Market mutual funds


 
 
Ú T-bills are t e most marketable money
market securities.
Ú T ey are issued wit t ree-mont , six-
mont and one-year maturities.
Ú T-bills are purc ased for a price t at is less
t an t eir par (face) value
6 w en t ey mature, t e government pays t e
older t e full par value.
Ú T-Bills are popular among money market
instruments because of affordability to t e
individual investors.

 

Ú V CD is a time deposit wit a bank.
6 Like most time deposit, funds can not
wit drawn before maturity wit out paying a
penalty.
Ú CDs ave specific maturity date, interest
rate and it can be issued in any
denomination.
Ú T e main advantage of CD is t eir safety.
Vnyone can earn more t an a saving
account interest.



Ú CP is a s ort term unsecured loan issued
by a corporation typically financing day to
day operation.
Ú CP is very safe investment because t e
financial situation of a company can easily
be predicted over t e next few mont s.
Ú Only company wit ig credit rating
issues CPs.


 
Ú Repo is a form of overnig t borrowing
and is used by t ose w o deal in
government securities.
Ú T ey are usually very s ort term
repurc ases agreements, from overnig t
to 30 days or more.
Ú T e s ort term maturity and government
backing usually mean t at Repos provide
lenders wit extremely low risk.
Ú Repos are safe collateral for loans.

 

Ú BV is a s ort-term credit investment created
by a non-financial firm.
Ú BVs are guaranteed by a bank to make
payment.
Ú Vcceptances are traded at discounts from
face value in t e secondary market.
Ú BV acts as a negotiable time draft for
financing imports, exports or ot er
transactions in goods.
6 T is is especially useful w en t e credit
wort iness of a foreign trade partner is unknown.
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V: ORGVpISED STRUCTURE
1. Reserve bank of India.
2. DFHI (Discount and Finance House of
India).
3. Commercial banks
6 Public sector banks SBI wit 7 subsidiaries
Cooperative banks 20 nationalised banks
6 Private banks, Indian Banks, Foreign banks
4. Development banks: IDBI, IFCI, ICICI,
pVBVRD, LIC, GIC, UTI etc.

B. UpORGVpISED SECTOR
1. Indigenous banks
2. Money lenders
3. C its
4. pid is
C. CO-OPERVTIME SECTOR
1. State cooperative
1. Central Cooperative Banks
2. Primary Vgri credit societies
3. Primary urban banks
2. State Land development banks, central land
development banks, Primary land development
banks




 


Ú Purc asing power of money goes down, in
case of increase in inflation.
Ú Vbsence of integration.
Ú Vbsence of Bill market.
Ú po contact wit foreign Money markets.
Ú Limited instruments.
Ú Limited secondary market.
Ú Limited participants.


 
 



Ú Hig ly organised banking system
Ú Presence of central bank
Ú Vvailability of proper credit instruments
Ú Existence of sub-markets
Ú Vmple resources
Ú Existence of secondary market
Ú Demand and supply of funds
 


Ú Integration of unorganised sector wit t e
organised sector
Ú aidening of call Money market
Ú Introduction of innovative instrument s
Ú Offering of Market rates of interest
Ú Promotion of bill culture
Ú Entry of Money Market Mutual Funds
Ú Setting up of credit rating agencies
Ú Vdoption of suitable monetary policy
Ú Establis ment of DFHI
Ú Setting up of security trading corporation of India
ltd. (STCI)


Ú T e money market specialises in debt securities
t at mature in less t an one year.
Ú Money market securities are very liquid, and are
considered very safe.
6 Vs a result, t ey offer a lower returns t an ot er
securities.
Ú T e easiest way for individuals to gain access to
t e money market is t roug a money market
mutual fund.
Ú T-bills are s ort-term government securities t at
mature in one year or less from t eir issue date.
6 T-bills are considered to be one of t e safest
investments.
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Ú V certificate of deposit (CD) is a time deposit wit a
bank.
6 Vnnual percentage yield (VPY) takes into account
compound interest, annual percentage rate (VPR) does
not.
6 CDs are safe, but t e returns are less, and money is tied
up for t e w ole lengt of t e CD.
Ú Commercial paper is an unsecured, s ort-term loan
issued by a corporation. Returns are ig er t an T-
bills because of t e ig er default risk.
Ú Banker·s Vcceptance (BV) are negotiable time draft
for financing transactions in goods.
Ú Repurc ase agreement (repos) are a form of
overnig t borrowing backed by government securities