Seminar Report on Money Market in India

8/6/2019 Seminar Report on Money Market in India

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MONEY MARKET INMONEY MARKET IN

INDIAINDIA


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INTRODUCTIONINTRODUCTION

Money market refers to a market forMoney market refers to a market forshort short--term funds, short term funds, short- -term moneyterm money

& financial assets which can be used& financial assets which can be usedas substitute for money. It can beas substitute for money. It can betermed as a mechanism or a systemtermed as a mechanism or a system

from which borrowers manage to obtainfrom which borrowers manage to obtainshort short--term funds & the creditors get term funds & the creditors get borrowers for their money.borrowers for their money.


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MEANING OF MONEY MARKET MEANING OF MONEY MARKET

MoneyMoney marketmarket meansmeans marketmarket wherewhere moneymoneyor its equivalent can be traded.or its equivalent can be traded.MoneyMoney Market is a wholesale market of short Market is a wholesale market of short

term debt instrument and is synonym of term debt instrument and is synonym of liquidity..liquidity..MoneyMoney MarketMarket is part of financialis part of financial marketmarketwherewhere instrumentsinstruments with high liquidity and verywith high liquidity and veryshort term maturities i.e. one or less than oneshort term maturities i.e. one or less than one

year are traded.year are traded.D ue to highly liquid nature of securities and theirD ue to highly liquid nature of securities and theirshort term maturities,short term maturities, moneymoney marketmarket isistreated as a safe place.treated as a safe place.


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DEFINITIONDEFINITION

The Reserve Bank of India: Functions & working The Reserve Bank of India: Functions & working has described the money market as the centre for has described the money market as the centre for dealings, mainly short dealings, mainly short- -term character, in monetary term character, in monetary assets; it meets the short assets; it meets the short- -term requirements of term requirements of borrowers & provides liquidity or cash to the lenders.borrowers & provides liquidity or cash to the lenders.It is a place where short It is a place where short- -term surplus investible funds term surplus investible funds

at the disposal of financial & other institutions & at the disposal of financial & other institutions & individuals are bid by borrowers, again compromising individuals are bid by borrowers, again compromising institutions & individuals and also government itself.institutions & individuals and also government itself.


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Characteristics of mon ey m arket Characteristics of mon ey m arket

T he money market in India has theT he money market in India has thefollowing Characteristics:following Characteristics:

1. It establishes the link between the RBI and banks.1. It establishes the link between the RBI and banks.

2. It is a inter2. It is a inter- -bank market which matches the deficits &bank market which matches the deficits &surplus of banks.surplus of banks.

3.T

his market secures short 3.T

his market secures short- -term requirements of term requirements of banks and financial institutions.banks and financial institutions.

4. It is a whole sale market.4. It is a whole sale market.

5. It provides a link between short 5. It provides a link between short- -term and longterm and long- -termtermcapital market.capital market.


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IMPORTANACE OF MONEYIMPORTANACE OF MONEY

MARKETMARKETIt is an important source of financing trade andIt is an important source of financing trade andindustry through bills, commercial papers, etc.industry through bills, commercial papers, etc.It influences the availability of funds both at It influences the availability of funds both at

domestic and international level.domestic and international level.It helps in the implementation of the monetaryIt helps in the implementation of the monetarypolicy of the central bank of a country.policy of the central bank of a country.It helps central bank in controlling the inflationIt helps central bank in controlling the inflationand deflation in the country.and deflation in the country.It helps the government as a guide in theIt helps the government as a guide in theformulating, revising & implementing theformulating, revising & implementing themonetary policy.monetary policy.


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In stituti on of mon ey m arket

Th e institutions of money market Th e institutions of money market means t h e market w hich deals in mea ns t h e market w hich deal s in

lending & borrow ing of short l ending & borrowing of short- -t erm t erm funds .funds .Th e institutions of mon ey diff er from Th e institutions of mon ey diff er from

country to country .country to country .


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Institutions of money market Institutions of money market

Commercial banks.Commercial banks.Central bank.Central bank.

Acceptance houses. Acceptance houses.Bill brokers.Bill brokers.Non Non--banking financial intermediaries.banking financial intermediaries.


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Commercial banksCommercial banks

Commercial banks may be termed as theCommercial banks may be termed as thebackbone of the market.backbone of the market.

T hese banks collect the money from theT hese banks collect the money from thepublic in the form of savings account,public in the form of savings account,current accounts and term deposits andcurrent accounts and term deposits andout of this collection, they finance theout of this collection, they finance theworking capital requirements of working capital requirements of corporates.corporates.


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Central bankCentral bank

Central bank is the apex institution & monetaryCentral bank is the apex institution & monetaryauthority. It plays a vital role in the moneyauthority. It plays a vital role in the moneymarket. No money market can exist without market. No money market can exist without

central bank.central bank.T he central banking functions are regulatory inT he central banking functions are regulatory inthe nature.the nature.It also functions as controller & guardian of theIt also functions as controller & guardian of the

money market.money market.D uring emergency, the central bank lends theD uring emergency, the central bank lends themoney to the commercial banks.money to the commercial banks.


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Acceptance houses Acceptance housesT he acceptance houses and the bill brokers areT he acceptance houses and the bill brokers arethe another constituent of the money market.the another constituent of the money market.T hey work in the bill market.T hey work in the bill market.T hey function as an intermediary betweenT hey function as an intermediary betweenlenders and borrowers, exporters & importers inlenders and borrowers, exporters & importers inthe short the short- -term.term.In India, discount & finance house of IndiaIn India, discount & finance house of India(DFH I) is such agency.(DFH I) is such agency.

As such, commercial banks are also functioning As such, commercial banks are also functioningas acceptance & discount houses in india.as acceptance & discount houses in india.


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B ill brokersB ill brokers

Bill brokers are the intermediariesBill brokers are the intermediariesbetween the lender and the borrower whobetween the lender and the borrower whodiscount the bills of exchange at a smalldiscount the bills of exchange at a smallcommission. T hus, they act like discount commission. T hus, they act like discount houses.houses.T hese brokers are very important inT hese brokers are very important inunderdeveloped money market.underdeveloped money market.


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NonNon--banking financialbanking financial

intermediariesintermediariesBesides commercial banks, these nonBesides commercial banks, these non- -banking financial intermediaries also dobanking financial intermediaries also dothe function of lending & borrowing of the function of lending & borrowing of short short--term funds in the money market.term funds in the money market.

T hese intermediaries include investment T hese intermediaries include investment houses, insaurance companies, chit funds,houses, insaurance companies, chit funds,provident funds, building societies, etc.provident funds, building societies, etc.


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THE INDIAN MONEY MARKETTHE INDIAN MONEY MARKET


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IND IAN

MONEY MARKET

I.UNORGANISED MONEY MARKET II.ORGANISED

MONEY MARKET


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I.UNORGANISED

MONEY MARKET

IND IGENOUSBANKERS

MONEY LEND ERS

UNREGULAT ED

NON-BANK F INANCIAL

INT ERMED IARIES


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1 .1 . INDEGENOUS BANKERS INDEGENOUS BANKERS T hese are the individuals or the private firmsT hese are the individuals or the private firmswhich act like a bank as they receivewhich act like a bank as they receivedeposits & give loans to the public.deposits & give loans to the public.

With a growth of commercial & coWith a growth of commercial & co- -operativeoperativebanks in the past two decadesbanks in the past two decadesthe business of indigenous bankers hasthe business of indigenous bankers hascontracted further.contracted further.T hese banks charge high rate of interest &T hese banks charge high rate of interest &are not covered by under the bank rate policy of are not covered by under the bank rate policy of RBI.RBI.


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2.2. MONEY LENDERSMONEY LENDERS

Money lenders are the persons who giveMoney lenders are the persons who giveloans to small borrowers, like smallloans to small borrowers, like smallfarmers, artisans, factory & minefarmers, artisans, factory & mineworkers.workers.T hey generally do not accept depositsT hey generally do not accept depositsfrom public.from public.T

hey run their business from their own moneyT

hey run their business from their own money& not borrowing from banks & financial& not borrowing from banks & financialinstitutions.institutions.


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3. Non3. Non--bank Financialbank Financial

intermediariesintermediariesF inance companies, chit funds & nidhis.F inance companies, chit funds & nidhis.T hese companies accept money fromT hese companies accept money from

public & also borrow from various sourcespublic & also borrow from various sourcesfor the purpose of granting loans tofor the purpose of granting loans toothers.others.T

hey normally provide loans to whole saleT

hey normally provide loans to whole saletraders, retailers, artisans & to self traders, retailers, artisans & to self- -employed persons.employed persons.


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II. ORGANISED MONEY MARKETII. ORGANISED MONEY MARKET

The Reserve bank of India, the state bank The Reserve bank of India, the state bank of India, commercial banks, coof India, commercial banks, co- -operativeoperative banks, foreign banks, discount and finance banks, foreign banks, discount and financehouses form organized segment of money houses form organized segment of money market.market.


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Organized money marketOrganized money market

I. Call Money Market I. Call Money Market III. T reasury BillsIII. T reasury Bills

IV. Commercial Bill Market IV. Commercial Bill Market V. Commercial Paper V. Commercial Paper VI. Certificates of D eposits VI. Certificates of D eposits

VII. Money Markets Mutual funds VII. Money Markets Mutual funds VIII. Repos and Reserve Repos VIII. Repos and Reserve Repos


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I. I. CALL MONEY MARKETCALL MONEY MARKET

Call money market is that part of the nationalCall money market is that part of the nationalmoney market where the daymoney market where the day--to day life surplusto day life surplusfunds of banks are traded.funds of banks are traded.T he main purpose of the operation of thisT he main purpose of the operation of thismarket is to adjust the reserves of banks withmarket is to adjust the reserves of banks withthe central banking system.the central banking system.Call money market are located in big industrial &Call money market are located in big industrial &commercial places like Mumbai, Kolkata, D elhi,commercial places like Mumbai, Kolkata, D elhi,

Ahemdabad & chennai. Ahemdabad & chennai.


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ii. Term money marketii. Term money market

T he term money market in India has beenT he term money market in India has beendormant.dormant.T

he term money market in India could not T

he term money market in India could not be developed due to statutory prebe developed due to statutory pre- -emption on interbank liabilities, cashemption on interbank liabilities, cash- -credit system of refinancing & inadequatecredit system of refinancing & inadequatedevelopment.development.


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ii. ii. Treasury B illsTreasury B ills

T reasury bill is a particular kind of T reasury bill is a particular kind of financial bill or a promissory note issuedfinancial bill or a promissory note issuedby the government .by the government .T he government issues these instrumentsT he government issues these instrumentsfor meeting temporary deficits occurredfor meeting temporary deficits occurreddue to its excess of expenditure overdue to its excess of expenditure overincome.income.


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iv. Commercial bill marketiv. Commercial bill market

It is a subIt is a sub- -market in which the trade billsmarket in which the trade bills

or the commercial bills are traded.or the commercial bills are traded.T hese bills are drawn by the seller on theT hese bills are drawn by the seller on thebuyer for the value of goods delivered tobuyer for the value of goods delivered tohim.him.


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v. Commercial paper v. Commercial paper

Commercial paper is the new instrument Commercial paper is the new instrument in money market.in money market.

It was introduced to enable highly ratedIt was introduced to enable highly ratedcorporate borrowers to diversify theircorporate borrowers to diversify theirsources of short sources of short- -term borrowings & alsoterm borrowings & alsoprovide an additional instrument to theprovide an additional instrument to theinvestor.investor.


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vi. Certificates of depositsvi. Certificates of deposits

A certificate of deposits is a document of A certificate of deposits is a document of title to depositors of funds at the bank fortitle to depositors of funds at the bank fora specified period at a specified rate of a specified period at a specified rate of interest.interest.T he C D s are bearer instruments & areT he C D s are bearer instruments & arereadily negotiable & marketable.readily negotiable & marketable.


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V II. Money Market Mutual fundV II. Money Market Mutual fund

Money market mutual fund wasMoney market mutual fund wasintroduced to enable the small investors tointroduced to enable the small investors toparticipate in the money market.participate in the money market.MMMF is a conduit through which they canMMMF is a conduit through which they canearn the market earn the market- -related yield.related yield.

A broad framework for setting up MMM F s A broad framework for setting up MMM F swas introduced by RBI in April, 1991.was introduced by RBI in April, 1991.


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In Reserve repo, securities areIn Reserve repo, securities arepurchased with a simultaneouspurchased with a simultaneous

commitment to resell at acommitment to resell at apredetermined rate & date.predetermined rate & date.


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Seminar Report on Money Market in India

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