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| Money Market |
Money Market is the market for dealing in monetary assets of short-term nature.Money market instruments have the characteristics of liquidity, minimum transaction cost and no loss in value .The money market is a wholesale debt market for low risk , highly liquid and short term instruments.Funds are available in this market for periods ranging from a single day upto a year.There are large number of participants in the money market:-Scheduled Commercial Banks,Mutual funds, Investment Institution, Financial institutions and finally the RBI.
Objectives of Money Market:
* A balancing mechanism for short term surpluses and deficiencies.
* A focal point of central bank intervention for influencing liquidity in the economy.
* A reasonable access to the users of short term funds to meet their requirements at reasonable cost.
Deficiencies in the growth of Money Market:-
* It had a very narrow base the RBI,Banks ,LIC and UTI as the only lenders participants while the borrowers were large in number;
* There are few money Market instruments.
* The interest rates were not market determined but controlled by either RBI or by a voluntary agreement between the participants through Indian banks Association.
Difference between money market and capital market:
* Money market deals with raising and development of fund for short term duration while the capital market deals with long term funding.
* Money market provide institutional source for providing working capital to the industry while the capital market offers long term capital for financing fixed assets.
Difference between Money Market and Securities Market:
Securities Market: security's market is a market place where security are dealt in i.e purchase and sales of all types of securities such as shares preference shares debentures bonds etc security market consist of stock exchange stock broker investors and regulatory authority,SEBI.
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| Money Market |
Various Money Market instruments
1) Government Securities - Government security are sovereign security which are issued by RBI on behalf of government the term government securities includes Central Government security State Government security and treasury bills.
All funds raised by the government from the money market are through the issue of security by the RBI does t bills government dated security are issued by the RBI on behalf of the government.
Types of Government Securities:
a) Dated Securities
b) Zero Coupon Bonds
c) Partly Paid Stock
d) Floating Rate Bonds,
Benefits of Investing in Government Securities:
a) No tax deduction at source.
b) additional income tax benefits.
c) qualifies for SLR purpose.
d) zero risk.
e) highly liquid
f) transparency in transactions in simplified settlement procedure through CDSL/NSDL.
2) Money at call and short Notice:
Money at call is outright money money at short notice is for maturity of or up to 14 days money for higher maturity is known as interbank deposits.
The participants are bank and all India financial institutions as permitted by RBI from April 1991 corporate with specified minimum lendable resources for transaction have also been permitted to land in the market through the DFHL (discount and finance house of India limited). The market is an over the telephone market non Bank participants act as lender only banks borrow for a variety of reasons to maintain CRR to meet heavy payments to adjust their majority mismatch etc.
3) Bill Rediscounting: bill financing is an important device for fund raising in advance countries. when sellor sales goods to the buyer he draw a bill of exchange on the buyer who accept it the bills are liquidated on majority hundies are popular in India.
In addition banks have a facility to read discounts the bill with RBI and other approved institutions like LIC ,GIC,UTI,IFCI etc.
4) Inter Bank participation -Vighul Committee suggested its revival for the purpose of removing in balances which affected the majority mix of banks assets two type of interbank participation issued by banks
a) On risks sharing basis
b)without risk sharing basis.
5) commercial paper: commercial paper is an unsecured money market instrument issued in the form of a promissory note . Commercial paper was introduced in India in 1990 with the view to enabling highly rated corporate borrows to diversify their source of short term borrowings and to provider additional instrument to investors.
6) Commercial Bills or Bills of Exchange:-
Commercial bills are basically negotiable instruments accepted by buyers for goods or services obtained by them on credit such bill being can be kept up to the due date and encashed by the seller or maybe endorsed t to the third party in payment of dues owing to the later .But the most important method is that seller who gets the accepted bills of exchange discounted with bank or financial i institution and collect the money.
7) certificate of deposits:-certificate of deposits are similar to the traditional term deposit but are negotiable and can be traded in the secondary market . Certificate of deposits is a document of title to a time deposits . Certificate of deposit is issued in multiple of rupees one lakh,subject to a minimum of rupees one lakh per investor. the maturity of certificate of deposites varies between 15 days and one year.
