MONEY MARKET

INSTRUMENTS
Presented By
Siddhartha

Money market is a market for short term

loans or financial assets. It is a market for the
lending and borrowing of short term funds.

It does not deal in cash or money

it actually deals only with near substitutes
for money or near money like trade bills,
promissory notes and government papers
drawn for a short period not exceeding one
year

Definition
A market for short term financial assets that
are close substitutes for money, facilitates the
exchange of money for new financial claims in
the primary market as also for financial
claims, already issued, in the secondary
market.

INSTUMENTS
MONEY AT CALL and short notice in the call loan market
TREASUREY BILLS in the treasury market
COMMERCIAL BILLS, and PROMISORY NOTES in the bill market
COMMERCIAL PAPERS
CERTIFICATE OF DEPOSIT
INTER-BANK PARTICIPATION CERTIFICATES
REPO INSTRUMENTS

MONEY AT CALL
EXTREMLY SHORT PERIOD LOANS i.e.

1 to 14

days.
Banks with surplus funds lend to banks with deficit
funds.
Stock brokers and dealers to deal in stock exchanges
and bullion markets.
Borrowers and lenders contact over phone, it is the
over the telephone market.

Advantages

High liquidity
High profitability
Safe and cheap
Assistance to Central Bank operations

Disadvantages

Uneven development
Lack of integration
Volatility in call money rates

Commercial bills

A commercial bill is one which arises out of a

genuine trade transaction i.e. credit transaction. As
soon as goods sold on credit, the seller draws a bill
on the buyer for the amount due. They accepts it
immediately agreeing to pay the amount mentioned
therein after a certain specified date. The time period
will be 3-6 months

Definition

An instrument in writing containing an

unconditional order, signed by the maker, directing a
certain person to pay a certain sum of money only to,
or to the order of a certain person or to the bearer of
the instrument.

Types of Bills

Demand and usance bills.

Clean bills and documentary bills.
Inland and foreign bills.
Export bills and import bills.
Indigenous bills.
Accommodation bills and supply bills.

Advantages
Liquidity
Negotiable asset
Certainty of Payment
Ideal investment
High and quick yield
Central bank control

Disadvantages
Absence of bill culture
Stamp duty
Absence of secondary market
Difficulty in ascertaining Genuine trade bill
Limited foreign Trade

TREASURY BILL MARKET

Treasury bills represents short term borrowings of

Government. They enjoy a higher degree of liquidity
since they are issued by the Government.

Meaning
A treasury bill is nothing but a promissory note

issued by the government under discount. The

government promises to pay specified amount to the
bearer on the due date. The period does not exceed 1
year.
It does not required any grading as it is a claim
against Government.
Issued only by RBI on the behalf of Government .

Types of Treasury bills

Ordinary or Regular
ad hocs

Advantages and Disadvantages

Safety
Liquidity
Ideal short investment
Ideal fund management
Poor yield
Absence of competitive bills
Absence of active trading

Commercial Papers

A commercial paper is an unsecured promissory

note issued with a fixed maturity by a company
approved by RBI, negotiable by endorsement and
delivery, issued in bearer form and issued at such
discount on the face value.

Issuers- All private sector company, public sector

units, non banking company etc.

Investors- Individuals, banks, corporate, NRI

Certificate of Deposit
Certificate

of deposit are short term deposit

instruments issued by banks and financial
institutions to raise large sum of money.

Issuers- commercial banks, financial institutions

etc.
Subscribers- individuals, corporations, trusts,
associations, NRIs.

REPO
Repo

stands for repurchase. Under Repo

transactions, the borrower parts with securities to
the lender with an agreement to repurchase them at
the end of the fixed period at a specified price. At the
end of the period, the borrower will repurchase the
securities at the predetermined period.
REPO- from the perspective of seller of securities
Reverse repo- from the perspective of supplier of
funds

THANK