MONEY MARKET

INSTRUMENT
 GROUP MEMBERS

MISBAH SYED SAYANAT ARSHE

23 05

MUSAIB MEHRAJ
13

PERZADA FARHAN
25 HUZAIFA WALI
41
 FINANCIAL MARKET
• Financial Markets are the centers or
arrangements that provide facilities for buying
and selling of financial claims.
• Financial markets provide channels for
allocation of savings to investment.
 The part of a financial
g m e n t o f the financial system concerned with
A se l
ar k e t in w hich financia FINANCIAL raising capital by
m
st ru m e n t s with high dealing in shares,
in
liquid it y a n d v e ry short MARKET bonds, and other long-
u riti e s a re traded. term investments
mat

MONEY CAPITAL
MARKET MARKET
Money
Market
“ A market for short terms financial assets that are
close substitute for money, facilitates the exchange of
money in primary and secondary market”.

………Reserve bank of India

• The money market is a mechanism that deals with
the lending and borrowing of short term funds.
• It includes all individual, institution and
intermediaries.
 Money
market

Unorganize Organized
d sector sector
 MONEY MARKET

Central
bank

Commercial
bank

Indigenous banks and

money lenders
 Functions
• Seasonal scarcity of credit
• Lack of integration
 Functions
a. Equilibrium
b. Provides Funds
c. Use of Surplus Funds
d. No Need to Borrow from Banks
e. Helps the government
f. Promotes Liquidity and Safety
Money Market
Instruments
 Call/Notic
e Money

Interbank Treasury
participation Bills
certificate

Instrument
Inter Certificate
corporate of Deposit
deposit

Commerci Commerci
al bill al Papers
 TREASURY BILLS
• Treasury Bills are short term (up to one year)
borrowing instruments of the union government.
• A treasury bill is a particular type of finance bill or
a promissory note put out by the government of
the country.
• It is an IOU of the Government. It is a promise by
the Government to pay a stated sum after expiry
of the stated period from the date of issue.
 Types

Ordinary Ad hoc
 91
day

364 Treasury 182

ON THE BASIS OF
bills PERIODICITY
day day

14
day
 Issued by

All- India Scheduled

Financial Commercial
Institutions Banks

Individuals,
Corporations
, Companies
Trust, Funds,
Associations
And NRI's

Issued to
 COMMERCIAL BILLS
“It is a written instrument containing an unconditional order,
signed by the maker, directing a certain person to pay a credit
sum of money only to, or to the order of, a certain person, or to
the bearer of the instrument.”
…….Indian Negotiable Instruments Act 1881
• It is an asset with a high degree of liquidity and a low degree
of risk.
• Liquidity • Absence of bill culture
• Certainty of payment
• Stamp duty
• Simple legal remedy
• Absence of secondary
• market
High and quick yield
• • Limited foreign trade.
Easy central bank
• Absence of acceptance
control
services
• Attitude of banks
 Commercial Paper
• Commercial Paper are short-term promissory
notes with fixed maturity issued mostly by the
leading, nationally reputed, credit-worthy, and
highly rated large corporations.
• Any person, bank, company, incorporated and
unincorporated bodies, and NRIs can invest in
CPs.
• Interest rates on CPs are market-determined.
• It was introduced in India in 1990.
• Simple. • It is available to few selected
blue chip and profitable
• Maturity is tailored to
companies.
match the cash flow of
• By issuing commercial
company. papers, the credit available
• Cost effective. from banks may get reduced.
• It is required• toIssue
be rated.
of commercial paper is
strictly regulated by RBI
• DEMAND AND UN
 Issued by
• Highly rated corporate borrowers, primary
dealers (PDs) , satellite dealers (SDs) and all-
India financial institutions (FIs)
Issued to
individuals, banking companies, other corporate
bodies registered or incorporated in India and
unincorporated bodies, Non-Resident Indians
(NRIs) and Foreign Institutional Investors (FIIs)
 Inter-corporate Deposit
• Deposits made by one company with another
company, and usually carry a term of six months.
It is a popular source of short-term finance.
• Procurement procedure is simple.
• The rate of interest on such deposits is not fixed.
It depends upon the amount involved and the
tenure of lending.
• It is uncertain source of finance, as deposit can
be withdrawn any time—so it is risky also.
 Types

Three- Six-
Call
month month
Deposit
Deposit Deposit
 Advantages
• Surplus funds can be effectively utilized by the
lender company.
• Such deposits are secured in nature.
• Inter-corporate deposits can be easily
procured
 Disadvantages
• A company cannot lend more than 10 per cent
of its net worth to a single company and
cannot lend beyond 30 per cent of its net
worth in total.
• The market for such source of financing is not
structured.
 Inter-bank participation certificate
• Inter-Bank Participation Certificates are instruments
issued by scheduled commercial banks only to raise
funds or to deploy short term surplus
• Participation certificates are a new form of credit
instrument whereby banks can raise funds from
other banks and other central bank approved
financial institutions to ease liquidity.
• The rate at which these certificates can be issued
will be negotiable depending on the interest rate
scenario
 Types

Without
With risk
risksharing
sharing
 Certificate of Deposits
• Certificate of Deposits (CDs) are marketable
receipts in bearer or registered form of funds
deposited in banks for a specified period at a
specified rate of interest.
• They are transferable, negotiable, short-term,
fixed-interest bearing, maturity dated, highly
liquid and riskless money market instruments.
 Call /Notice-Money Market
• Call Money Market is that part of the national
money market where the day-to-day surplus
funds, mostly of banks are traded in.
• The nature of this market in different
countries varies from each other.
• They are highly liquid, their liquidity being
exceed only by cash.
 Advantages
• High liquidity.
• High profitability.
• Maintains SLR.
• Safe and cheap.
• Assistance to the central bank operations.
 Disadvantages
• Uneven development.
• Lack of integration.
• Volatility in call money rates.
 n k
h a
T ou