MONEY MARKET IN INDIA
Presented by,Reeshma.V.RMONEY MARKET IN INDIAAs per RBI definition A market for short term financial a assets that are close substitute for money facilitating the exchange of in primary and secondary market.The money market is a mechanism that deal with the lending and borrowing of short term funds less than one year.A segment of financial market in which financial instruments with high liquidity and very short maturities are traded.Money marketFEATURES OF MONEY MARKETThe operations i.e, raising and deployment of funds are for a short duration.It is the institutional source of working capital to the industry.Thee are a large number of participantsIt is a wholesale market
Trading in the money market is conducted on the telephone, followed by written confirmation from both the borrowers and lenders.Transactions, are on a same day settlement basis, having to be conducted without a help of brokers.
Lack of rigidity in the regulatory frame work.
The components are the Central Bank, commercial bank, NBFCs, Discount house and acceptance houses. Commercial bank generally play a dominant role in the market.
ation from both the borrowers and lenders.
To provide an equilibrating mechanism for evening out short term surpluses and deficiencies.To provide a focal point of central bank intervention for influencing liquidity to the economy.To provide a reasonable access to the users of short term funds to meet their requirements at realistic reasonable price cost andTo provide a place for overcoming short-term deficit
OBJECTIVES OF MONEY MARKETIMPORTANCE OF MONEY MARKETDevelopment of trade and industryDevelopment of capital marketSmooth functioning of commercial bank.Effective central bank control.Formulation of suitable monitory policy.Non inflationary source of finance to government.Mobilization of funds.COMPOSITION OF MONEY MARKETMoney market constitute of a number of money market which collectively constitute the money market. They areCall money marketCommercial bill market or discount bill marketAcceptance bill marketTreasury bill market.INSTRUMENTS OF MONEY MARKETA verity of instruments are available in a developed money market in India till 1986. only a few instrument were available thy are:Treasury billMoney at call and short notice in the call loan marketCommercial bill, promissory note in the bill market.NEW INSTRUMENTS OF MONEY MARKETNow addition to the above the following are new instruments are available.Commercial paperCertificate of depositInter-bank participation certificateRepo-instrumentsBankers acceptanceRepurchase agreementMoney market mutual instrument.
TREASURY BILL (T.bills)T.Bills are the most marketable money market security.They are issued with three months-six months and one year maturityT-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 instrument because of a affordability to the individual investors. CERTIFICATE PAPER (CP)CP is a short term on unsecured loan issued by corporation typically day to dayCP is very safe investment because the financial situation of a company can easily be predicted over a few months.Only company with high credit rating issues CPsRE-PURCHASE AGREEMENT(REPOS)Repos is a form of overnight borrowing and is used by those who deal in govt.securities.They are usually very short term re purchases agreement, from short overnight to 30 days or more.The short term maturity and government backing usually mean that Repos provide lenders with extremely low risk.Repos are safe collateral for loanBANKERS ACCEPTANCEA bankers acceptance is a short term credit investment credited by a non financial firm.BAs are guaranteed by a bank to make payments.Acceptance are traded at discount from face value in the secondary market.BAs acts as a negotiable time draft for financing imports, exports or other transactions in good.This is especially useful when the credit worthless of a foreign trade partner is unknown. CERTIFICATE OF DEPOSITA CD is a time deposit with a bank. like most time deposit, funds cant withdrawn 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 CDs their safety.Anyone can earn more than a saving account interest.
ADVANTAGES OF MONEY MARKETHighly organized banking systemPresence of central bankAvailability f proper credit instrumentExistence of sub marketAmple resourcesExistence of secondary marketDemand and supply of funds.
DISADVANTAGES OF MONEY MARKETPurchasing power of your money goes down, in case of up in inflationAbsence of integrationAbsence of bill marketNo contact with foreign money marketLimited instrumentsLimited secondary marketLimited participantsRECENT DEVELOPMENTS IN INDIAN MONEY MARKETIntegration of unorganized sector with organized sector.Widening of call money market.Introduction of innovative instruments.Offering of market rates of interest.Promotion of bill culture.Entry of money market mutual funds.Setting up of credit rating agenciesAdoption of suitable monetary policyEstablishment of DFHISetting up of security trading corporation of India ltd.
THANK U
