Money Market in India
Money Market in India
Money Market in India
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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.
Contd.
It doesnt 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
individual,
institution
and
formal like stock exchange, only through oral communication, relevant document and written communication transaction can be done.
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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).
term
surplus funds.
To provide
deficits.
To enable the central bank to influence and
government.
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. Inter-bank participation certificates. Repo instrument Banker's Acceptance Repurchase agreement Money Market mutual fund
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.
before maturity without paying a penalty. CDs have specific maturity date, interest rate and it can be issued in any denomination. The main advantage of CD is their safety. Anyone can earn more than a saving account interest.
corporation operation.
typically
financing
day
to
day
CPs.
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 extreamly low risk. Repos are safe collateral for loans.
Banker's Acceptance
A bankers acceptance (BA) is a short-term credit
investment created by a non-financial firm. BAs are guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in the secondary market. BA acts as a negotiable time draft for financing imports, exports or other transactions in goods. This is especially useful when the credit worthiness of a foreign trade partner is unknown.
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II. UNORGANISED SECTOR 1. Indigenous banks 2 Money lenders 3. Chits 4. Nidhis III. CO-OPERATIVE SECTOR 1. State cooperative i. central cooperative banks Primary Agri credit societies Primary urban banks 2. State Land development banks central land development banks Primary land development banks
of up in inflation. Absence of integration. Absence of Bill market. No contact with foreign Money markets. Limited instruments. Limited secondary market. Limited participants.
organised sector Widening of call Money market Introduction of innovative instrument Offering of Market rates of interest Promotion of bill culture Entry of Money market mutual funds Setting up of credit rating agencies Adoption of suitable monetary policy Establishment of DFHI Setting up of security trading corporation of India ltd. (STCI)
Summary
The money market specializes in debt securities
that mature in less than one year. Money market securities are very liquid, and are considered very safe. As a result, they offer a lower return than other securities. The easiest way for individuals to gain access to the money market is through a money market mutual fund. T-bills are short-term government securities that mature in one year or less from their issue date. T-bills are considered to be one of the safest investments.
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A certificate of deposit (CD) is a time deposit with a
bank. Annual percentage yield (APY) takes into account compound interest, annual percentage rate (APR) does not. CDs are safe, but the returns aren't great, and your money is tied up for the length of the CD. Commercial paper is an unsecured, short-term loan issued by a corporation. Returns are higher than Tbills because of the higher default risk. Bankers acceptance (BA) are negotiable time draft for financing transactions in goods. Repurchase agreement (repos) are a form of overnight borrowing backed by government securities.
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