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, facilitates the exchange of
money in primary and secondary market”.
The money market is a mechanism that deals with
the lending and borrowing of short term funds
(less than one year).
A segment of the financial market in which
financial instruments with high liquidity and very
short maturities are traded.
Continued…….
It doesn’t actually deal in cash or money but
deals with substitute of cash like trade bills,
promissory notes & govt papers which can
converted into cash without any loss at low
transaction cost.
It includes financial institutions and
intermediaries (RBI, Banks, PDs, MFs, Insurance
cos., State govt., provident funds, NRIs, large
corporate investors.).
FEATURES OF MONEY
MARKET?
It is a market purely for short-terms funds or
financial assets called near money.
It deals with financial assets having a maturity
period less than one year only.
In Money Market transaction can not take place
formal like stock exchange, only through oral
communication, relevant document and written
communication transaction can be done.
Continued……..
Transaction have to be conducted without the
help of brokers.
It is not a single homogeneous market, it
comprises of several submarket like call money
market, acceptance & bill market.
The component of Money Market are the
commercial banks, acceptance houses & NBFC
(Non-banking financial companies).
OBJECTIVE OF MONEY
MARKET?
To provide room for overcoming short term
deficits.
To enable the central bank to influence and
regulate liquidity in the economy through its
intervention in this market.
To provide a reasonable access to users of short-
term funds to meet their requirement quickly,
adequately at reasonable cost.
FINANCIAL SECTOR
REFORMS
o Object of financial sector reforms by
Government of India & RBI.
o Condition of money market before Pre
reform period (Before 1991)
o Sukkmoy Chakravarthi Committee( 1985)
o Vaghul Committee( 1985-91)
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. The market comes within the direct preview of the
Reserve Bank of India [Link] 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.
To ensure an adequate flow of credit to the productive sector of the
economy and
To bring about order in the foreign exchange market.
The Reserve Bank of India influence liquidity and interest rates through
a number of operating instruments - cash reserve requirement (CRR)
of banks, conduct of open market operations (OMOs), repos, change in
bank rates and at times, foreign exchange swap operations.
Factors affecting Money
Markets
Interest Rate/ Yield- Market expectations
& risk premium
Mss/ Liquidity - RBI Monetary Policy
Inflation- Fiscal Deficit/ Govt. borrowing
Cyclical trends in the Economy
Forex reserves/ Exchange Rate
MONEY MARKET
INSTRUMENTS [Sec. 45U(b)]
Treasury bills
Certificate of deposit.
Commercial papers.
Money at call and short notice in the call loan
market.
Inter-bank term money
Repo instrument
Banker's Acceptance
Treasury Bills (T-Bills)
(T-bills) are the most marketable money market
security.
They are issued with three-month, six-month
and one-year maturities.
T-bills are purchased for a price that is less than
their par(face) value; when they mature, the
government pays the holder the full par value.
T-Bills are so popular among money market
instruments because of affordability to the
individual investors.
Continued…..
They are highly liquid as they are of shorter
tenure and there is a possibility of an
interbank repos on them.
They have an assured yield, low transaction
cost, and are eligible for inclusion in the
securities for SLR purpose
Recently T-Bills are also being issued
frequently under the Market Stabilization
Scheme (MSS).
Advantages of investing in T-
Bills:
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.
Amount & Auction
Treasury bills are available for a minimum amount of
Rs.25,000 and in multiples of Rs. 25,000. Treasury bills
are issued at a discount and are redeemed at par.
Treasury bills are also issued under the Market
Stabilization Scheme (MSS). They are available in both
Primary and Secondary market.
The 91-day T-bills are auctioned every week on
Wednesdays, 182 days and 364-day T-bills are auctioned
every alternate week on Wednesdays. The Reserve Bank
of India issues a quarterly calendar of T-bill auctions
Conclusion
Lastly concluded that the Indian money market plays a
vital role in the Indian financial system. It is a short term
market where the liquidity is very high. The government
securities are traded in a short term period. It mobilizing
the financial assets in the various sectors and traded by
the banks and other financial intermediaries. This market
regulates by the primary dealers where the STCI &
SBIDFHI plays a pivotal role. These institution regulates
the market. So this market is very much needed for the
financial institutions to meet the need of short term debt
in the market.
Thank you
