Presentation on Money market ( definition, importance, instruments, non banking financial companies, players of money market }

1. MONEY MARKET

2. Definition
Definition: Money market basically refers to a section of
the financial market where financial instruments with
high liquidity and short-term maturities are traded.
Money market has become a component of the
financial market for buying and selling of securities of
short-term maturities, of one year or less, such as
treasury bills and commercial papers.

3. Description
• Money market consists of negotiable instruments
such as treasury bills, commercial papers. and
certificates of deposit. It is used by many participants,
including companies, to raise funds by selling
commercial papers in the market. Money market is
considered a safe place to invest due to the high
liquidity of securities.

4. • The money market is an unregulated and
informal market and not structured like the
capital markets, where things are organised in a
formal way. Money market gives lesser return to
investors who invest in it but provides a variety
of products.

5. *

6. Financing trade – Money market plays crucial
role in financing both internal as well as
international trade. Commercial finance is made
available to the traders through bills of
exchange, which are discounted by the bill
market.
Financing industry – Money market helps in
securing the short-term loans to meet their
working capital requirements through the
system of finance bills , commercial papers, etc.

7. Profitable investment – Money market
enables the commercial banks to use their
excess reserves in profitable investment.
Self-sufficiency of commercial bank –
Developed money market helps the
commercial banks to become self-sufficient.
Help to central bank – It smoothens the
functioning and increases the efficiency of
central bank.

8. MONEY MARKET
INSTRUMENTS
 Call money market
 Commercial paper
 Treasury bills
 Commercial bills
 Certificate Of Deposits
 Money Market Mutual Funds
 The Repo Market
 Discount And Finance House Of India

9. 1) Call And Notice Money Market :-
The market for extremely short-period is referred as call money market. Under
call money market, funds are transacted on overnight basis. The participants
are mostly banks. Therefore it is also called Inter-Bank Money Market. Under
notice money market funds are transacted for 2 days and 14 days period. The
lender issues a notice to the borrower 2 to 3 days before the funds are to be
paid. On receipt of notice, borrower have to repay the funds. In this market the
rate at which funds are borrowed and lent is called the call money rate.

10. COMMERCIAL PAPERS
Commercial Papers were introduced in January
1990. The Commercial Papers can be issued by
listed company which have working capital of
not less than Rs. 5 crores. They could be issued
in multiple of Rs. 25 lakhs. The minimum size of
issue being Rs. 1 crore. At present the maturity
period of CPs ranges between 7 days to 1 year.
CPs are issued at a discount to its face value
and redeemed at its face value.

11. COMMERCIAL BILLS
• A bill of exchange is drawn by a seller on the buyer to make
payment within a certain period of time. Generally, the
maturity period is of three months. Commercial bill can be
resold a number of times during the usance period of bill.
• - Commercial bills are short term, negotiable and self
liquidating money market instruments with low risk.
• Commercial bill can be resold a number of times during the
usance period of bill.

12. TREASURY BILLS (t-bills)
• Commercial bill can be resold a number
of times during the usance period of bill.
• Treasury bills are available for a minimum
amount of Rs. 25,000 and in multiples of
Rs. 25,000. Periodic auctions are held for
their Issue.
• At present three types of treasury bills
are issued through auctions, namely 91
day, 182 day and364day treasury bills.
• Interest is determined by market forces

13. CERTIFICATE OF DEPOSIT (CD)
• The scheme of CDs was introduced in 1989
by RBI. The main purpose was to enable
the commercial banks to raise funds from
market.
• CDs are unsecured, negotiable promissory
notes issued at a discount to the face
value.
• CDs are issued by Commercial banks and
development financial institutions.
• At present, the maturity period of CDs
ranges from 3 months to 1 year. They are
issued in multiples of Rs. 25 lakh subject to
a minimum size of Rs. 1 crore.

14. MONEY MARKET MUTUAL FUNDS (MMMFs)
• - A Scheme of MMMFs was introduced by
RBI in 1992. The goal was to provide an
additional short-term avenue to
individual investors.
• A money market fund (also called
a money market mutual fund) is an
open-ended mutual fund that invests in
short-term debt securities

15. REPO MARKET
• Repo was introduced in December 1992. Repo is a repurchase
agreement. It means selling a security under an agreement to
repurchase it at a predetermined date and rate.
• Repo transactions are affected between banks and financial
institutions and among bank themselves, RBI also undertake
Repo.

16. UNORGANIZED MONEY MARKET
The unorganized money market mostly finances short-term
financial needs of farmers and small businessmen. The main
constituents of unorganized money market are:-
• Indgenious Bankers
• Money Lenders
• Non Banking Financial Companies (NBFCs)

17. Indigenous bankers
• Indigenous bankers are individuals or private firms who receive
deposits and give loans and thereby operate as banks. IBs accept
deposits as well as lend money. They mostly operate in urban areas,
especially in western and southern regions of the country.
• Further their lending operations are completely unsupervised and
unregulated.

18. MONEY LENDER
(MLs) They are those whose primary business is money
lending. Money lending in India is very popular both in urban
and rural areas. Interest rates are generally high. Large
amount of loans are given for unproductive purposes. The
operations of money lenders are prompt, informal and
flexible. The borrowers are mostly poor farmers, artisans,
petty traders and manual workers.

19. Non Banking Financial Companies
• Chit funds: are savings institutions. It has regular members who make
periodic subscriptions to the fund. The beneficiary may be selected by
drawing of lots. Chit fund is more popular in Kerala and Tamilnadu. RBI has
no control over the lending activities of chit funds.
• Nidhis: -Nidhis operate as a kind of mutual benefit for their members only.
The loans are given to members at a reasonable rate of interest. Nidhis
operate particularly in South India.
• Finance Brokers:- They are found in all major urban markets specially in
cloth, grain and commodity markets. They act as middlemen between
lenders and borrowers. They charge commission for their services.

20. Players of money market
• Government - The government is the most active player and the
largest borrower in the money market.
• Reserve bank of India - The unorganised money market comes
under the direct regulation of RBI. It plays the role of merchant
bankers to the government.
• Commercial bank - Commercial bank lending and undertaking of
short –term funds and have major impact on interest structure and
liquidity position.

21. Players of money market
• Financial institution-They lend money to banks by
rediscounting bills of exchange.
• Corporate firms – It operates in money market to raise short-
term funds to meet their working capital requirements.
• Dealers- It is the intermediaries of the money market. It is
introduced by RBI for developing an active secondary market
for government securities.