Definition - As per RBI definitions “ A market for short term financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market“.

Market for short-term financial instruments

Maturities of one year or less, and often 30 days or less

Trading takes place in large financial centres

Companies and investors often use money market securities

Money market instruments have low risk

Core of the money market consists of interbank lending

To provide a parking place to employ short-term surplus funds

To provide room for overcoming short term deficits.

To enable the central bank to influence and regulate liquidity in the economy through intervention in this market

Development of trade & industry Development of capital market Smooth functioning of commercial banks Effective central bank control Formulation of suitable monetary policy Non inflationary source of finance to

government.

ORGANISED STRUCTURE 1. Reserve bank of India. 2. DFHI (discount and finance house of India). 3. Commercial banks i. Public sector banks SBI with 7 subsidiaries Cooperative banks 20 nationalised banks ii. Private banks Indian Banks Foreign banks 4. Development bank IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc

II. UNORGANISED SECTOR 1. Indigenous banks 2 Money lenders 3. Chits 4. Nidhis III. CO-OPERATIVE SECTOR 1. State cooperative i. Central cooperative banks Primary Agri credit societies Primary urban banks 2. State Land development banks Central land development banks Primary land development banks

Treasury Bills (T-Bills) Repurchase Agreements Commercial Papers Certificate of Deposit Banker's Acceptance Call money market Money Market Mutual Funds

Treasury Bil ls – Issued by the Indian government in 1917 They are short-term instruments One of the safest money market instruments They have 3-month, 6-month and 1-year

maturity periods

Repurchase Agreements – Also known as repos Repo transactions are allowed only between

RBI-approved securities Repurchase agreements are sold by sellers

with a promise

Commercial Papers – First issued in the Indian money market in

1990. Promissory notes issued by companies and

financial institutions Issued at a discounted rate of their face value Commercial papers yield higher returns than T-

bills

Cer tif icate of Deposit – First introduced to the money market of India in

1989. A certificate or deposit is a short-term

borrowing note in the form of a certificate It usually has a term between 3 months and 5

years The funds cannot be withdrawn on demand

Banker's Acceptance – The terms for these instruments are usually 90

days, but this period can vary

Companies use the acceptance as a time draft for financing

Call money market – Maturity period varying from one day to 15 days

Interest rate paid on call money loans is called Call Rate

Money Market Mutual Funds – In 1997, only one MMMF was in operation,

and that too with very small amount of capital

The RBI has approved the establishment of very few such funds in India

Purchasing power of your money goes down, in case of up in inflation

Absence of integration Absence of Bill market No contact with foreign Money markets. Limited instruments Limited secondary market Limited participants

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