MONEY MARKET

Money market is a component of

financial markets dealing with debt
WHAT IS instruments that allow short term
borrowing for institutions. For
MONEY individual investors, the closest they
MARKET? can invest money is investing in a
money market instruments based
mutual fund.
 Provides funds to needy

Uses surplus funds

FUNCTIONS
OF MONEY Maintains financial mobility
MARKET
Promotes liquidity and safety

Stability of funds in market

 Meet short term fund requirements.

Overcome short term deficits.

OBJECTIVES Helps central bank to regulate

OF MONEY liquidity in the economy.
MARKET
Helps government to implement
monetary policy.
Employment of surplus fund in good
investment opportunity.
 Intervenes money market
ROLE OF
RBI IN Maintain liquidity
MONEY Absorbs money
MARKET
Injects money
 Money market instruments are
financial instruments that help
companies, corporations, and
What are government bodies to raise
Money Market short-term debt for their needs.
Instruments? The borrowers meet their
short-term needs at a low cost
and the lenders benefit from
interest rates and liquidity.
 Treasury Bills
Types of Commercial Bills
Money Market
Instruments in Certificate of Deposit
India
Commercial Paper
Repurchase Agreements 
Treasury Bills 
Also called T-bills & Zero-coupon bonds.
Short-term borrowing by the government
of India.
These instruments are issued at a discount
and repaid at par at the time of maturity.
Maturity :Less than 1 year.
Commercial bills Certificate of Deposit

•  Issued in a dematerialised form

• It is issued by one business man to against funds deposited in a bank for
a specific period. 
another businessman because to facilate
• A certificate of deposit can only be
credit sale or credit purchase.
• Maturity period -3 months issued for a minimum of Rs.1 lakh by
• CB is fully transferable and negotiable a single issuer and in multiples of Rs.1
lakh.
investment.
• Low liquidity and low interest rate.
Commercial paper Repurchase
agreement

Shortterm,usecured,negotiable,transfe
rable and promissory in nature.
Fixed maturity period
Sold at discount redeemed at par.
Basically , it is used by large companies
To raise large amount of funds.
 Ø Call money market

Ø Collateral Loan Market

Components
of Money Ø Acceptance Market

Market Ø Bill Market

Call money Market :It is the market for very short-term
fund. In call money market loans are unsecured. It is also
known as Interbank money market or money at call.

Collateral Loan Market : The collateral loan market is a

type of financial market in which lenders provide loans to
borrowers in exchange for the collateral of the borrower's
assets. These loans are given for few months
Acceptance Market : The market where the bankers’
acceptance are easily sold and discounted is known as
acceptance market.

Bill Market : It is a market in which short term papers or

bills are bought and sold
Call Money
Market

.
Call Money Market
Call money market is apart of money market where loans are for short-term
duration varying from 1-14 days are traded.
Call money refers to the short-term borrowing and lending of funds among
banks and financial institution to manage their daily liquidity requirements.
This instrument allows banks to borrow funds from other banks for a period i.e.
one day to a fortnight
The money that is lent for one day in this market is known as "call money" and,
if it exceeds one day, is referred to as "notice money”.
If the money lend exceeds 15 days or more then it is referres as “term money”
Features of Call Money Market
 Inter bank call money market.
Short term surplus funds are traded.
Most liquid in nature.
It is tighter in busy seasons and easy during slack season.
Provides mechanism to adjust the surplus or deficitof banks.
Advantages of call money market
 Highly liquid investment
High profitability
Loans are safe
No expenses on intermediaries
Drawbacks of call money market
1. Exist in few major cities only like Mumbai, Chennai, Kolkata and Delhi.
2. Interest rate is highly volatile (changing nature) as it quicky changes from season to season.
3. Very few participants like commercial banks and few financial institutions.
 Participants of call money market
Following are the participate as both borrower as well as
lender:-
1. Scheduled commercial banks
2. Foreign banks
3. State, District and Urban Cooperative banks
4. Discount and finance House
5. Primary dealers

Following are participates as lender only:-

LIC, UTI, IDBI and NABARD.
Term Money Market
It is the market for very short-term funds

These loans are given for a very short period from (15 days – 1yr)

When the term money rates rises we can identify that bank is having liquidity problem

When too many banks borrows loans the term money rates increases

Term Money market is one of the component of Call Money Market

All the participants in the Term Money Market use NDS

NDS is managed by CCIL

NDS (Negotiated Dealing System)
It  is an electronic trading platform operated by the Reserve Bank of India
(RBI) to facilitate the issuing and exchange of government securities and
other types of money market instruments.

The Negotiated Dealing System (NDS) facilitates trading and dealing in

Indian government securities.

It is managed by CCIL
 It provides clearing and settlement service to its members
for transactions entered in government securities, money
market instruments, foreign exchange and rupee
derivatives

CCIL(Clearing The regulatory body of CCIL is “RBI”

Corporation Of
India) CCIL offers guaranteed settlement to all interbank USD/INR
transactions (Cash/Tom/Spot/Forward)

CCIL as a Central Counterparty has helped in reducing

counterparty risk.