Money Mkt
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Transcript of Money Mkt
MONEY MARKET
• It is a market for dealing in monetary assets of short-term nature.
• It is a wholesale market.
• The volumes are very high.
• Transactions are settled on daily basis.
• Short term constitute : 1 day to 1 year
• MM centres in India are : Mumbai , Delhi , Kolkata
Major Players
• RBI
• Commercial Banks
• Mutual Funds
• Financial Institutions
• Primary Dealers
MM instruments have following characteristics:
• Liquidity
• Minimum transaction cost
• No loss in value
Utility
• Helps in meeting temporary shortages of cash.
• Facilitates the conduct of monetary policy
• Short term surpluses and deficits are evened out
• Helps RBI to influence liquidity and level of
interest rates
• Facilitates government market borrowing
CALL / NOTICE Money Market
• Predominantly an inter-bank market• Minimum size of transaction Rs 10 cr• Call- overnight & Short Notice -1 day - 14 days
TERM Money Market
• Maturity ranges between 3 months -1 year
INSTRUMENTS
Treasury Bills [T-bills]
• Issued by RBI on behalf of Central Government to raise short-term funds
• Issued for 91 days,182-days ,364 days
• Issued at discount and repaid at par on maturity• Negotiable security
• Can be rediscounted with banks , thus highly liquid
• No default risk
• Easy availability
• Assured yield
• Minimum amount Rs 25,000 or in multiples thereof
• Participants are banks , mutual funds , FIs , PFs , corporates ,foreign banks , FIIs.
Certificate of Deposit [CD]• They are short term time-deposits issued by
commercial banks and financial institutions.
• They are interest bearing ,maturity dated obligations of banks .
• They are unsecured in nature.
• Minimum issue of Rs 1 lac and additional amount in multiples thereof
• They are in bearer form and can be traded in secondary market
• Issued for varying period between 2 weeks - 5 years.
• Can be issued on a discount to face value basis as well as on floating rate method.
• Banks and FIs cannot issue loan against CDs
• They cannot buy back their own CDs before maturity
• Usually purchased by individuals, corporates , trusts , funds and NRIs .
Commercial Paper [CP]
• Is an unsecured short-term promissory note issued at a discount by creditworthy corporates , primary dealers and all Indian financial institutions
• Issued for minimum period of 7 days and maximum of 1 year from the date of issue
• Issued in denominations of Rs 5 lac and multiples thereof
• Can be issued at a discount as decided by the company
• It is negotiable and transferable
• Usually purchased by individuals , banks , corporates , unincorporated bodies , NRIs and FIIs.
Commercial Bills
• Are negotiable instruments drawn by the seller on the buyer which are , in turn , accepted and discounted by commercial banks.
• Important tool to finance credit sales
• Demand bill: payable on demand
• Usance bill : payable after a specified time
• Documentary bill: documents are held by bank till bill is paid
• Clean bill
Tools for Managing Liquidity in the Money Market
Direct Instruments
• Reserve Requirement :CRR [8.75%] - cash that banks need to keep with RBI ; SLR[25%] – mandatory investment in government security
• Limits on Refinance
• Administered Interest Rates : bank rate – 6%
• Qualitative and Quantitative Restrictions on Credit
Indirect Instruments
• Open Market• Repos / Reverse Repos
Thank you