Money Market

Money market means market where money

or its equivalent can be traded.
Money Market is a wholesale market of short
term debt instrument and is synonym of
liquidity..
Money Market is part of financial market
where instruments with high liquidity and very
short term maturities ie one or less than one
year are traded.
Due to highly liquid nature of securities and
their short term maturities, money market is
treated as a safe place.
Hence, money market is a market where
short term obligations such as

The Players
Reserve Bank of India
SBI DFHI Ltd (Amalgamation of Discount &
Finance House in India and SBI in 2004)
Acceptance Houses
Commercial Banks, Co-operative Banks and
Primary Dealers are allowed to borrow and lend.
Specified All-India Financial Institutions, Mutual
Funds, and certain specified entities are allowed
to access to Call/Notice money market only as
lenders
Individuals, firms, companies, corporate bodies,
trusts and institutions can purchase the treasury
bills, CPs and CDs.

Call Money Market

The call money market is an integral part
of the Indian Money Market, where the
day-to-day surplus funds (mostly of
banks) are traded. The loans are of
short-term duration varying from 1 to 14
days.
The money that is lent for one day in this
market is known as "Call Money", and if
it exceeds one day (but less than 15
days) it is referred to as "Notice Money".

Call Money Market

Banks borrow in this market for the
following purpose
To fill the gaps or temporary
mismatches in funds
To meet the CRR & SLR mandatory
requirements as stipulated by the
Central bank
To meet sudden demand for funds
arising out of large outflows.

Certificate of Deposit
CDs are negotiable money market instruments
and are issued in dematerialized form, for funds
deposited at a bank or other eligible financial
institution for a specified time period.
They are like bank term deposits accounts. Unlike
traditional time deposits these are freely
negotiable instruments and are often referred to
as Negotiable Certificate of Deposits

Features of CD
(i) CDs can be issued by all scheduled
commercial banks except RRBs (ii) selected all
india financial institutions, permitted by RBI
Minimum period 15 days
Maximum period 1 year
Minimum Amount Rs 1 lac and in multiples of
Rs. 1 lac
CDs are transferable by endorsement
CRR & SLR are to be maintained
CDs are to be stamped
CDs may be issued at discount on face value

Commercial Paper
Commercial Paper (CP) is an unsecured money market instrument issued in
the
form
of
a
promissory
note.
Who
can
issue
Commercial
Paper
(CP)
Highly rated corporate borrowers, primary dealers (PDs) and satellite
dealers (SDs) and all-India financial institutions (FIs)
To whom issued
CP is issued to and held by individuals, banking companies, other corporate
bodies registered or incorporated in India and unincorporated bodies, NonResident Indians (NRIs) and Foreign Institutional Investors (FIIs).

Denomination: min. of 5 lakhs and multiple thereof.

Maturity: min. of 7 days and amaximum of upto one year from the
date of issue

Eligibility for issue of CP

the tangible net worth of the company, as per the

latest audited balance sheet, is not less than Rs. 4
crore;
(b) the working capital (fund-based) limit of the
company from the banking system is not less than
Rs.4 crore
and the borrowal account of the company is classified
as a Standard Asset by the financing bank/s.

All eligible participants should obtain the credit

rating for issuance of Commercial Paper
The minimum credit rating shall be P-2 of CRISIL
or such equivalent rating by other agencies

Treasury Bills
Treasury bills, commonly referred to as T-Bills are
issued by Government of India against their short
term borrowing requirements with maturities
ranging between 14 to 364 days.
All these are issued at a discount-to-face value.
For example a Treasury bill of Rs. 100.00 face
value issued for Rs. 91.50 gets redeemed at the
end of it's tenure at Rs. 100.00.
Who can invest in T-Bill
Banks, Primary Dealers, State Governments,
Provident Funds, Financial Institutions, Insurance
Companies, NBFCs, FIIs (as per prescribed norms),
NRIs & OCBs can invest in T-Bills.

 At present, the Government of India

issues three types of treasury bills through
auctions, namely, 91-day, 182-day and
364-day. There are no treasury bills issued
by State Governments.
Amount
Treasury bills are available for a minimum
amount of Rs.25,000 and in multiples of
Rs. 25,000. Treasury bills are issued at a
discount and are redeemed at par.
Types of Bills: on tap bills, ad hoc bills,
auctioned T- bills

Repos
It is a transaction in which two parties agree
to sell and repurchase the same security.
Under such an agreement the seller sells
specified securities with an agreement to
repurchase the same at a mutually decided
future date and a price
The Repo/Reverse Repo transaction can only
be done at Mumbai between parties approved
by RBI and in securities as approved by RBI
(Treasury Bills, Central/State Govt securities).

Reforms in Indian Money

Market
1. Deregulation of the Interest Rate:
In recent period the government has
adopted an interest rate policy of liberal
nature. It lifted the ceiling rates of the
call money market, short-term deposits,
bills rediscounting, etc. Commercial
banks are advised to see the interest
rate change that takes place within the
limit.

2. Money Market Mutual Fund

(MMMFs): In order to provide
additional
short-term
investment
revenue, the RBI encouraged and
established the Money Market Mutual
Funds (MMMFs) in April 1992. MMMFs
are allowed to sell units to corporate
and individuals. The upper limit of 50
crore investments has also been lifted.
Financial institutions such as the IDBI
and the UTI have set up such funds.

3. Establishment of the DFI: The Discount

and Finance House of India (DFHI) was set up
in April 1988 to impart liquidity in the money
market. It was set up jointly by the RBI, Public
sector Banks and Financial Institutions. DFHI
has played an important role in stabilizing the
Indian money market.
4. Electronic Transactions: In order to impart
transparency and efficiency in the money
market transaction the electronic dealing
system has been started. It covers all deals in
the money market. Similarly it is useful for
the RBI to watchdog the money market.

5. Development of New Market

Instruments: The government has
consistently tried to introduce new
short-term investment instruments.
Examples: Treasury Bills of various
duration,
Commercial
papers,
Certificates of Deposits, MMMFs, etc.
have been introduced in the Indian
Money Market.