finance ppt(2003)

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PRSENTATION ONPRSENTATION ONMONEY MARKETMONEY MARKET

INSTRUMENTSINSTRUMENTS

By: Jaideep Singh (011)By: Jaideep Singh (011)

Vivek Singh(012)Vivek Singh(012)

Ashwani Parihar(013)Ashwani Parihar(013)

Sunny Mehta(014)Sunny Mehta(014)

Varish kachhawha (015)Varish kachhawha (015)

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WHAT IS MONEYWHAT IS MONEY

MARKET?MARKET?Money market means a market where money or itsMoney market means a market where money or its

equivalent can be traded.equivalent can be traded.

RBI defines it as A market for short terms financialRBI defines it as A market for short terms financial

assets that are close substitute for money, facilitates theassets that are close substitute for money, facilitates the

exchange of money in primary and secondary marketexchange of money in primary and secondary market

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MONEY MARKETMONEY MARKET

INSTRUMENTSINSTRUMENTS

Treasury BillsTreasury Bills

Certificate of DepositCertificate of Deposit

Commercial PaperCommercial Paper

Bankers AcceptanceBankers Acceptance

Inter bank participation certificates.Inter bank participation certificates.

Repurchase AgreementsRepurchase Agreements

Collateralized Borrowing and Lending ObligationCollateralized Borrowing and Lending Obligation

Money Market Mutual FundsMoney Market Mutual Funds

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TREASURY BILLS (TTREASURY BILLS (T--BILLS)BILLS)

One of the safest money market instruments.One of the safest money market instruments.

Short term borrowing instruments of the Central GovernmentShort term borrowing instruments of the Central Government

of the Country issued through the Central Bank i.e RBI inof the Country issued through the Central Bank i.e RBI inIndia.India.

They are zero risk instruments, and hence the returns are notThey are zero risk instruments, and hence the returns are not

so attractive.so attractive.

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BANKER'S ACCEPTANCEBANKER'S ACCEPTANCE

It is a short term credit investment created by a nonIt is a short term credit investment created by a non

financial firm and guaranteed by a bank to make payment.financial firm and guaranteed by a bank to make payment.

AcceptancesAcceptances areare tradedtraded atat discountsdiscounts fromfrom faceface valuevalue inin thethesecondarysecondary marketmarket..

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COLLATERALIZED BORROWING ANDCOLLATERALIZED BORROWING AND

LENDING OBLIGATION (CBLO)LENDING OBLIGATION (CBLO)

Is an RBI approved Money Market instrument.Is an RBI approved Money Market instrument.

Creates an obligation on the borrower to repay the moneyCreates an obligation on the borrower to repay the moneyborrowed along with interest on a predetermined future dateborrowed along with interest on a predetermined future dateand a Right and Authority to the lender to receive money lentand a Right and Authority to the lender to receive money lentalong with interest on a predetermined future date.along with interest on a predetermined future date.

It is a mechanism to borrow and lend funds against securitiesIt is a mechanism to borrow and lend funds against securities

for maturities of 1 day to 1 year.for maturities of 1 day to 1 year.

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Financial InstrumentsFinancial Instruments

Cash instrumentsCash instruments are financial instruments whose value isare financial instruments whose value is

determined directly by markets.determined directly by markets.

They can be divided intoThey can be divided into securitiessecurities, which are readily, which are readily

transferable, and othertransferable, and othercashcash instruments suchinstruments suchasas loansloans andand depositsdeposits, where both borrower and lender have to, where both borrower and lender have to

agree on a transfer.agree on a transfer.

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SecuritiesSecurities

AA securitysecurity is ais a negotiable instrument representing financialnegotiable instrument representing financial

valuevalue

They are of Two types:They are of Two types:

1.Ownership securities:1.Ownership securities:-- Equity shares, preference sharesEquity shares, preference shares

2.creditorship securities :2.creditorship securities :-- Debentures, innovative debtDebentures, innovative debtinstruments.instruments.

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OWNERSHIP SECURITIESOWNERSHIP SECURITIES

EQUITY SHARES:EQUITY SHARES:--

Share holders are ultimate owner of the company.Share holders are ultimate owner of the company.

They get residual claim on incomeThey get residual claim on income

Shares are the permanent source of fundShares are the permanent source of fund

Share holders have right to voteShare holders have right to vote

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PREFERENCE SHARESPREFERENCE SHARES

Share holders have prior claim on incomeShare holders have prior claim on income

They get fixed dividendThey get fixed dividend

Preference shares are redemable within 10 yearsPreference shares are redemable within 10 years

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CREDITORSHIP SECURITIESCREDITORSHIP SECURITIES

DEBENTURES:DEBENTURES:--

Holders are entitled to a prespecified interestHolders are entitled to a prespecified interest

They dont have voting rightThey dont have voting right

Payment of interest in legally enforceablePayment of interest in legally enforceable

It can be both convertible or non convertible into equity sharesIt can be both convertible or non convertible into equity shares

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Innovative debt instrumentsInnovative debt instruments

It gives holders the right to convert debentures/bonds intoIt gives holders the right to convert debentures/bonds intoequity share on certain terms.equity share on certain terms.

They entitled to a fixed income till the conversion option isThey entitled to a fixed income till the conversion option is

exercised and would share the benefits associated with equityexercised and would share the benefits associated with equityshares after conversion.shares after conversion.

3 types of convertible debentures are :3 types of convertible debentures are :--

1.Complulsorily convertible within 18 months1.Complulsorily convertible within 18 months2.Optionally convertible within 36 months2.Optionally convertible within 36 months

3.convertible after 36 months3.convertible after 36 months

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BondsBonds

BondBond is a debtis a debt security, in which the authorized issuer owessecurity, in which the authorized issuer owes

the holders a debt and, depending on the terms of the bond, isthe holders a debt and, depending on the terms of the bond, is

obliged to pay interestobliged to pay interest (the(the coupon) and/or to repay thecoupon) and/or to repay the

principal at a later date, termedprincipal at a later date, termed maturity.maturity.

A bond is a formal contract to repay borrowed money withA bond is a formal contract to repay borrowed money with

interest at fixed intervalsinterest at fixed intervals

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Cont..Cont..

Bonds provide the borrower with external funds to financeBonds provide the borrower with external funds to financelonglong--termterm investments, or, in the case of government bonds, toinvestments, or, in the case of government bonds, tofinance current expenditure.finance current expenditure.

Bonds andBonds and stocksstocks are bothare both securities, but the major differencesecurities, but the major difference

between the two is that (capital) stockholders havebetween the two is that (capital) stockholders haveanan equityequity stake in the company (i.e., they are owners), whereasstake in the company (i.e., they are owners), whereasbondholders have a creditor stake in the company (i.e., theybondholders have a creditor stake in the company (i.e., theyare lenders)are lenders)

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DepositsDeposits

AA deposit accountdeposit account is ais a current account,current account, savings account, orsavings account, orother type ofother type ofbank accountbank account, at a, at a bankingbanking institution thatinstitution thatallowsallows moneymoney to be deposited and withdrawn by the accountto be deposited and withdrawn by the accountholder.holder.

These transactions are recorded on the bank's books, andThese transactions are recorded on the bank's books, andrepresent the amount owed by the bank to the customer.represent the amount owed by the bank to the customer.

Some banks charge a fee for this service, while others may paySome banks charge a fee for this service, while others may paythe customer interestthe customer interest on the funds deposited.on the funds deposited.

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ixed IncomeFixed Income -- Zero CouponZero Coupon

InstrumentsInstruments

ZeroZero--coupon instruments do not make periodic interestcoupon instruments do not make periodic interestpayments. Instead, the interest accrues and is paid in a lumppayments. Instead, the interest accrues and is paid in a lumpsum at maturitysum at maturity

When each instrument matures, you receive its par value,When each instrument matures, you receive its par value,which represents your original principal investment and thewhich represents your original principal investment and thecompound interest you earned but did not receive during thecompound interest you earned but did not receive during thelife of the instrumentlife of the instrument

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Advantages..Advantages..

Assured growth, assuming you hold the securities untilAssured growth, assuming you hold the securities until

maturity.maturity.

Low minimum investmentLow minimum investment

Automatic compounding of interest.Automatic compounding of interest.

A wide selection of issuers, and maturities ranging from oneA wide selection of issuers, and maturities ranging from oneyear to 30 years or more.year to 30 years or more.

Liquidity through a secondary marketLiquidity through a secondary market

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THANK YOU..!!!THANK YOU..!!!