MONEY
MARKET
Presented by
Manisha
3rd sem MBA
Structure of Indian Money
Market?
I :- ORGANISED SECTOR
1. Reserve bank of India.
2. DFHI (discount and finance house of India).
3. Commercial banks
i. Public sector banks
SBI with 7 subsidiaries
Cooperative banks
20 nationalized banks
ii. Private banks
Indian Banks
Foreign banks
4. Development bank
IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.
Continued…..
II. UNORGANISED SECTOR
1. Indigenous banks
2 Money lenders
3. Chits
What is Money Market?
As per RBI definitions “ 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 all individual, institution and
intermediaries.
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.
Continued……..
Transaction have to be conducted without the
help of brokers.
It is not a single homogeneous market, it
comprises of several sub market like call money
market, acceptance & bill market.
The component of Money Market are the
commercial banks, acceptance houses & NBFC
(Non-banking financial companies).
Importance of Money Market?
o Development of trade & industry.
o Development of capital market.
o Smooth functioning of commercial banks.
o Effective central bank control.
o Formulation of suitable monetary policy.
Composition of Money Market?
Money Market consists of a number of sub-
markets which collectively constitute the
money market. They are,
Call Money Market
Commercial bills market or discount
market
Acceptance market
Call Money Market
Key segment in money market.
Very short term funds for 2-14 days.
Bill brockers and stock exchange dealers
are the main borrowers of the call money
market
money at call short notice
secondary cash researve for banks
Treasury bills market
It is a market for the short dated bills.
Treasuary bills are the important instrument.
Leading bill market-Londen Bill Market
commercial banks can keep their liquid cash
profitabily for short period.
Rediscount them with central bank.
Instrument of Money Market?
A variety of instrument are available in a developed
money market. In India till 1986, only a few
instrument were available.
They were
• Treasury bills
• Money at call and short notice in the call loan
market.
• Commercial bills, promissory notes in the bill
market.
New instrument
Now, in addition to the above the following new
instrument are available:
Commercial papers.
Certificate of deposit.
Repo instrument
Banker's Acceptance
Repurchase agreement
Money Market mutual fund
Treasury Bills (T-Bills)
91 days treasury bills
182 days treasury bills
364days treasury bills
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.
Certificate of deposit (CD)
A CD is a time deposit with a bank.
Like most time deposit, funds can not
withdrawn before maturity without paying
a penalty.
CD's have specific maturity date- 3 to 12
months.
The main advantage of CD is their safety.
It can be issued to individuals, companies ,
firms, NRI's
Transferable
Issued at min of Rs.100000
Commercial paper (CP)
Cps are issued by the company
typically financing day to day operation.
CP is very safe investment because the financial
situation of a company can easily be predicted
over a few months.
Issued at a discount on face value
Maturity period between 3 months to 12
months.
Only company with high credit rating issues CP's.
No interest will be specified in the instrument
Either the public or private sector can issue Cps.
Any person,bank,company except NRIs are
eligible to invest in CPs.
Repurchase agreement (Repos)
Repo is a form of overnight borrowing and is
used by those who deal in government
securities.
They are usually very short term repurchases
agreement, from overnight to 30 days of more.
The short term maturity and government
backing usually mean that Repos provide lenders
with extremely low risk.
Repos are safe collateral for loans.
Mutual Funds
The main function of mutual funds is to
Mobilise the saving of general public in
stock market securities.
Mfs are divided into small 'units'.
Disadvantage of Money Market
Existence of unorganized money market.
Absence of integration.
Diversity in rates of interest
Shortage of money
Absence of Bill market.
Limited instruments.
Thank you
