Money market

GROUP 1
BINAL KOTADIA-22 CHARMI SANGHAVI-40 ANKITA SARVAIYA-42 KRINAL SHAH-45 RIKISHA SHAH-48

contents
INTRODUCTION FEATURES FUNCTIONS

IMPORTANCE

STRUCTURE OF INDIAN MONEY MARKET

MONEY MARKET INSTUMENTS

REFORMS & DEVELOPMENT

DISADVANTAGES OF MONEY MARKET

CONCLUSION

BIBLIOGRAPHY

Introduction
The money market is a monetary system

of lending and borrowing of short-term funds.

After the globalization initiative in 1992,

India has witnessed a growth in its money markets.

Financial institutions have been employing money market instruments to finance the short-term monetary requirements of industries such as agriculture, finance and manufacturing.

The money markets have performed

well in the past 20 years.

The Reserve Bank of India (RBI) has been

playing the key role of regulator and controller of such money markets.

FEATURES OF MONEY MARKET

Transaction have to be conducted without the help of brokers. It is not a single homogeneous market, it comprises of several submarket like call money market, acceptance & bill market. The component of Money Market are the commercial banks, acceptance houses & NBFC (Non-banking financial companies).

In Money Market transaction can not take place formal like stock exchange, only through oral communication, relevant document and written communication transaction can be done. The sub markets have close inter- relationship & free movement of funds from one sub-market to another. It is a wholesale market & the volume of funds or financial assets traded are very large i.e. in crores of rupees.

Function of money market

It facilitates economic development as short

term funds are provided to the industry and other sectors.

It provides avenue for short term investment

opportunities to investors.
It helps the banks to maintain financial discipline

It facilitates proper implementation of monetary

policy of RBI
Encourages savings and investment Control inflation because RBI reduces money

supply by increasing the repo rate and cash reserve ratio.

Government to raise short term funds to meet

its deficits

Importance of Money Market

Financing industry & trade Smooth function of commercial

banks. Encourage Economic Growth Formulation of suitable monetary policy. Non inflationary source of finance to government. Proper allocation of resources

Organized sector
RBI-Its is the most important player in Indian money

market. It ensures liquidity to facilitate economic growth and price stability. It issues T-bills and other government securities to raise funds for government. GOVERNMENT-This is most active player and a largest borrower in money market. BANKS-It has a major impact and influence on the interest rate structure and liquidity position FINANCIAL INSTITUTIONS-They undertake lending and borrowing of short term funds . They transact in large volumes. DFHI(DISCOUNT FINANCE HOUSE OF INDIA)-It is jointly owned by RBI,Public sector banks and all financial institutions. It deals in money market instruments and also government securities. It participates in repo operations..thus plays an important role in developing and stabilizing the money market

Unorganized sector
INDIGENOUS BANKS-It is a financial intermediary

that operates as banks by receiving deposits giving loans and dealing in hundies.They are known by different names like Multans , shroffs etc.The main advantage is simple and flexible operations. MONEY LENDERS-The money lenders deal in business of lending money at very high rate of interest for unproductive purpose. Their services are prompt, informal and flexible NIDHIS & CHIT FUNDS-Chit funds are saving institution where in members make regular contribution to the fund whereas Nidhis are mutual funds at a reasonable interest rates. BROKERS AND DEALERS-They are found in urban markets. They are intermediaries between lenders and borrowers

MONEY MARKET INSTRUMENTS

Money market instrument

provides the borrowers to fulfill their short term needs and gives the liquidity which is needed to lenders Money market instruments are those which have maturity period of less than 1 year. The types of MM instruments are treasury bills, commercial papers call money market, bankers acceptance.etc

CALL MONEY MARKET

Call money market is also known as inter-bank Call money

market In the call money market lending and borrowing transactions are carried out for one day. The loans are of short-term duration (1 to 14 days). Money lent for one day is called call money; if it exceeds 1 day but is less than 15 days it is called notice money. Money lent for more than 15 days is term money It is a highly competitive and sensitive market It is basically located in the industrial & commercial location.

CERTIFICATE OF DEPOSITS
A CDs is a short term borrowing note like promissory note in the form of certificate. Transferable by endorsement. Maturity of not less than 7 days and maximum up to a year. FIs are allowed to issue CDs for a period between 1 year and up to 3 years CDs are issued at discount to face value and discount rate is market determined. The funds cannot be withdrawn on demand but it can be liquidated on payment of a

penalty. Issued to individuals, corporations, trusts, funds and associations.

COMMERCIAL BILL MARKET

A commercial bill market deals in bills of exchange. This bills can be domestic bills or foreign bills of exchange.
In India the commercial bill market is highly underdeveloped.

The commercial bills are purchased and discounted by commercial banks

and are rediscounted by FIs. It may be a demand bill

COMMERCIAL PAPERS
It is a short term unsecured promissory

note issued by corporates and financial institutions at a discounted value on face value. Can be issued in the physical form (Usance Promissory Note) or demat form. Banks, corporations and foreign governments commonly use this type of funding. Blue-chip companies issue CPs to obtain short term funds from money market Issued minimum of Rs. 5 lacs and in the multiple of Rs. 5 lacs after that Maturity is 7 days to 1 year CP is very safe investment because the financial situation of a company can easily be predicted over a few months.

Reforms in money market

Deregulation of the Interest

Rate Money Market Mutual Fund (MMMFs) : Establishment of the DFI : Electronic Transactions Development of New Market Instruments :

Development in money market

Money market denotes inter-bank market where the

banks borrow and lend among themselves to meet the short term credit and deposit needs of the economy. The unexpected nature of the call money market led to the activation of the Treasury Bills market to reduce dependence on call money. Emergence of market repo and collateralized borrowing and lending obligation (CBLO) instruments Turnover in the call money market declined from Rs. 35,144 crore in 2001-02 to Rs. 14,170 crore in 2004-05 before rising to Rs. 21,725 crore in 2006-07.

Disadvantage of Money Market

Absence of Integration Multiple rate of interest Insufficient Funds or

Resources Shortage of Investment Instruments Shortage of Commercial Bill Lack of Organized Banking System Less number of Dealers

conclusion
Lastly concluded that the Indian money market plays a vital role in the

Indian financial system. It is a short term market where the liquidity is very high. The government securities are traded in a short term period. It mobilizing the financial assets in the various sectors and traded by the banks and other financial intermediaries. This market regulates by the primary dealers where the STCI & SBIDFHI plays a pivotal role. These institution regulates the market. So this market this very much needed for the financial institutions to meet the need of short term debt in the market.

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