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Call Money Market: Made By:-Akriti Agrawal Anjali Aggarwal Preety Dixit Anirudh Shrivastav

The document summarizes the call money market and various money market instruments in India. The call money market refers to extremely short term loans between 1-14 days that can be called back by either party. It provides a way for banks to manage liquidity. Rates are negotiated daily based on supply and demand. Other instruments discussed include treasury bills, commercial papers, certificates of deposits, and the role of primary dealers in the government securities market.

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Anirudh Shrivastav
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32 views11 pages

Call Money Market: Made By:-Akriti Agrawal Anjali Aggarwal Preety Dixit Anirudh Shrivastav

The document summarizes the call money market and various money market instruments in India. The call money market refers to extremely short term loans between 1-14 days that can be called back by either party. It provides a way for banks to manage liquidity. Rates are negotiated daily based on supply and demand. Other instruments discussed include treasury bills, commercial papers, certificates of deposits, and the role of primary dealers in the government securities market.

Uploaded by

Anirudh Shrivastav
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
Download as pptx, pdf, or txt
Download as pptx, pdf, or txt
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CALL MONEY

MARKET

Made by:- Akriti Agrawal


Anjali Aggarwal
Preety Dixit
Anirudh shrivastav

Call Money means deals in overnight funds.


Notice Money means deals in funds for 2 - 14
days.
Fortnight shall be on a reporting Friday basis and
mean the period from Saturday to the second
following Friday, bothdays inclusive.

Call Money Market


The call money market refers to the market for extremely short period loans;
say one day to fourteen days. These loans are repayable on demand at the
option of either the lender or the borrower.
For banks which need short term money to adjust their liquidity needs or
havesurplus funds, call money marketprovides an avenueto borrow or lend
funds. The transactions arenot collateralized, meaning, no security is offered
or taken for borrowing or lending respectively.
Call money rates are negotiated between the parties and are ruled by purely
demand and supply of funds in the system on a given date. Call rates are
barometer of short term liquidity in the economy and hencewatched very
closely by the Central Bankof a country.

Features of callmarkets are:


The call market enables thebanks and institutions to even out their dayto
day deficits and surpluses of funds,
Commercial banks and co-operative banks are allowed to borrow as well
as lend money in call market.
Specified All India Financial Institutions, Mutual Funds and certain specified
entities such as insurance companies are allowedaccess to call money
market only as lenders.
Non-bank entities such as Corporates are notallowed to operate in call
market.
Interest rates in call money are negotiated by theparties concerned and
onany given date several transactions may take placeat different rates.
No brokers are permitted to deal incall market.
The transactions in call market are routedthrough current account of

Category of money market


instruments.
Treasury Bills (T. Bills) of 91/364 days
Commercial Papers (C.Ps.)
Bills Rediscounting (BRDs) or CommercialBills Market
Certificate of Deposits (C.Ds.)
Participation Certificates (P.Cs.)

Treasury Bills
TreasuryBillsareshorttermmoneymarketinstrumentswitha maturity
of generally 14 / 91 / 182/ 364 days. Currently, RBI issues T. Bills of
maturity of91 and 364 days.
They are issued at discounted value. The difference between issueprice
and face value (maturity value) is the earning or return for the investor.
Theyareissuedthrough theprocessofauction.
They are issued not in physical form but through Subsidiaries General
Ledger (SGL) account maintainedby RBI for eachparticipant.
Subsequent transactions in T. Bills are also settled through this account.
The transactions arebywayofauction andvolumesare involved are
quite large. Small investors, therefore, stay away from these
investments. Also returns are traditionally low on account of the fact
that they amount to governmentborrowings and therefore have
absolute safety.

Contd
Banks,FinancialInstitutes, Insurancecompanies,
mutualfunds,primary dealers and large corporates who havelarge
short term funds generally invest in T. Bills.
Investments in T. Bills areconsidered part of
SLRsecuritiesforbanks and therefore, they are encouraged to
invest in this instrument in spite of low returns. Also, they are highly
liquid on account of secondary market transactions between banks.
DFHIacts as market makers forT.Bills by givingtwoway quotes
i.e. they offer to sale and buy T. Bills in secondary market
simultaneously.

Contd
Key factors influencing yields on TBills are:
In a situation where banks are flushed with funds, demand for T. Bills will
be very high which will drive down the ratesof return (yield).
In case liquidity in the system is low, the returns will be highsince
response for the auction would be lowfor want of funds and therefore,
returns will be comparatively high.
Formula for calculation of yield on T. Bills is as follows:
Yield = [(Face value Issue price) X365 / (Price x no. ofdays to
maturity)] X 100.

Commercialpapers
Commercialpapersareissuedforthe purposeofraising
shorttermresources for the issuers at very low rates.
CPs are shortterm,unsecured, negotiablepromissory noteswith fixed
maturity issued by corporates, financialinstitutes, primary dealers etc.
Maturity of CPs varies between 15 days to 360 days.
CPs are issuedatdiscountedrate andthe differencebetween issue
priceand the face value is yield for the investor.
TheycanbeissuedindenominationofRs5 lacs andin multipleofRs5
lacs.
Individuals(havinglargenetworth),corporates,financialinstitutions,
insurance companies, banks etc.can invest in this instrument since
they have large fund for investments.

Certificate of Deposits

Whereas CPs are issued by companies to raise short term resources, for investment of
short term surplus funds, companies and high net worth individuals (HNIs) use CDs issued
by banks as an instrument of investment. Special features of CDs are,
It is a negotiable, short term instrument issued by banks and development financial
institutions.
CDs are issued by banks and DFIs to augment their resources by paying attractive rate
of interest on large deposits of money by companies and wealthy individuals.
Deposit rates depend on funds position of banks and liquidity available in the system.
Higher the liquidity, the rates would drop, since banks would not be interested in
mobilizing deposits when they are flushed with funds.
Although they can be traded in secondary market, currently there is not much depth to
the secondary market for CDs.
Although CDs were permitted to be issued only at discounted price, RBI has now
allowed banks to issue CDs at par with a coupon (interest)

Primary Dealers
System of Primary Dealers was set up by RBI in 1994 for: Strengthening the trading in government securities to make the securities
market vibrant, liquid and broad based.
Ensuring development of underwriting and market making capabilities
forgovernment securities outside RBI so that it can concentrate on their
own responsibilities.
Improving secondary market trading system which would contribute to
price discovery, enhance liquidity and turnover and encourage voluntary
holding ofgovernment securities amongst wider investor base.
Making PDs aneffective conduit for conducting Open Market Operations

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