MONEY MARKET

Definition:

A money market is a market for lending and borrowing of funds

for either short-term, medium-term and long-term.
ORGANISED MONEY MARKET
1. Treasury Bill Market :
This market deals in treasury bills which are popularly of three types
91 days, 182 days and 364 days.
These bills are securities issued by the government. They are sold
through an auction process announced by RBI at a discount to its face
value.
They are largely held by RBI for financing the Central Government
temporary deficits.
2. Commercial Bill Market :
This market deals in bills of exchange both domestic and foreign. A
seller (drawer) draws bill on buyer (drawee) to receive payment in a
stipulated period of time. They can be endorsed, purchased and
rediscounted by the commercial banks and financial institutions.
3. Commercial Paper Market (Cps):
The schemes of commercial paper were introduced to enable the
companies to obtain funds from the market. As per RBI guidelines,
CPs can be issued by companies satisfying the following conditions:
The minimum tangible net worth of the company should not be
less than 4 crores.
The minimum working capital of the company should not be
less than 4 crores.
The firms equity shares should be listed on the stock exchange.
The CP should receive a minimum rating of A2 / P4 from Crisil.
The present maturity period ranges from 7 days to 1 year are issued in
multiples of 5 lakhs subject to a minimum size of 25 lakhs to a single
investor.

4. Mutual Funds :
A mutual fund body corporate is registered with SEBI. It pools surplus
funds from the investors to invest it in shares, bonds, government
securities and other financial securities in the capital market.
They can be financial intermediaries that collect funds from the public
and invest it on behalf of them. SEBI is the Directory Authority for
mutual funds.
5. Stock Market :
Shares of different companies are traded in order to enable the general
public to invest in these shares. The stock exchange is an association
or a body of individuals formed for purpose of assisting, regulating or
controlling the transactions of buying and selling securities between
investors.
6. Call Money Market :
It is also known as Inter-bank call money market. In this market the
lending and borrowing transactions are only for 1 day between banks.
These one day transactions include demand from deficit commercial
banks while the supply comes from commercial banks with surplus
funds.
7. Certificate of Deposit Market (CDs) :
This scheme of CDs was introduced by RBI. The main purpose of
CDs is to enable the commercial banks to raise funds from the market
at present the maturity period of CDs issued ranges from 7 days to 1
year. The CDs are issued in multiples of 25 lakhs to a minimum size
of 1 crore.
8. Repurchase Agreements :
In 1992, RBI had introduced these agreements and the period of these
agreements is 2 days to 14 days. They are classified into the following
2 categories Repo : It is an agreement between banks and RBI thereby RBI
lends money to banks by repurchasing securities. Repo helps to
increase the liquidity with the banks.
Reverse Repo : It is an agreement between banks and RBI
whereby RBI borrows money from the banks by selling
securities. It helps to reduce the excess liquidity with banks.