Money Market Ppt 23

7/28/2019 Money Market Ppt 23

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MONEY MARKET


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WHAT IS MONEY MARKET?

As per RBI definitions A market for short termsfinancial assets that are close substitute formoney, facilitates the exchange of money inprimary and secondary market.

The money market is a mechanism that dealswith the lending and borrowing of short termfunds (less than one year).

A segment of the financial market in which

financial instruments with high liquidity and veryshort maturities are traded.


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CONTINUED..

t doesnt actually deal in cash or moneybut deals with substitute of cash like trade

bills, promissory notes & governmentpapers which can converted into cashwithout any loss at low transaction cost.

It includes all individual, institution andintermediaries.


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FEATURES OF MONEY MARKET?

Transaction have to be conducted without the helpof brokers. It is not a single homogeneous market, it comprisesof several submarket like call money market,acceptance & bill market.

The component of Money Market are thecommercial banks, & NBFC (Non-banking financialcompanies).

In Money Market transaction can not take place

formal like stock exchange, only through oral

communication, relevant document and writtencommunication transaction can be done.


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Objective of Money Market?

To provide a reasonable access to users ofshort-term funds to meet their

requirement quickly, adequately atreasonable cost.

To provide a parking place to employ short

term surplus funds.


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Importance of Money Market?

Development of trade & industry.

Development of capital market.

Smooth functioning of commercial banks. Effective central bank control.

Formulation of suitable monetary policy.


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Commercial paper (CP)

In the global money market, commercial paperis an unsecured promissory note with a fixedmaturity of 1 to 271 days. Commercial paper is a

money-market security issued (sold) by largecorporations to get money to meet short termdebt obligations

CP is a short term unsecured loan issued by a

corporation typically financing day to dayoperation.

Only company with high credit rating issuesCPs.


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Treasury Bills (T-Bills)

T bill are money market instruments to financethe short term requirements of the governments

of India. They are issued with 14 days.91 days 182 days

and 365 days.

T-bills are purchased for a price that is less thantheir par(face) value .means at discounted price


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Certificate of deposit (CD)

A CD is a time deposit with a bank.

Like most time deposit, funds can not withdrawnbefore maturity without paying a penalty.

CDs have specific maturity date, interest rate.

The main advantage of CD is their safety.

Anyone can earn more than a saving account

interest.


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Structure of Indian Money Market?

I :- ORGANISED STRUCTURE

1. Reserve bank of India.

2. DFHI (discount and finance house of India).

3. Commercial banksi. Public sector banksSBICooperative banks20 nationalized banks

ii. Private banksIndian BanksForeign banks

4. Development bankIDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.


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Continued..

II. UNORGANISED SECTOR1. Indigenous banks2 Money lenders3. Chits

4. Nidhis

III. CO-OPERATIVE SECTOR1. State cooperative

i. central cooperative banks

Primary Agri credit societiesPrimary urban banks2. State Land development banks

central land development banksPrimary land development banks


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Characteristic features of a

developed money Market?

Highly organized banking system

Presence of central bank

Availability of proper credit instrument

Existence of secondary market

Existence of sub-market


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10 ! RECENT DEVELOPMENT IN

MONEY MARKET

Integration of unorganized sector with the organizedsectorWidening of call Money marketIntroduction of innovative instrumentPromotion of bill cultureEntry of Money market mutual fundsSetting up of credit rating agenciesAdoption of suitable monetary policy

Establishment of DFHISetting up of security trading corporation of India ltd.(STCI)


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'Gilt-Edged Securities

High-grade bonds that are issued by a

government or firm. In the case of a firm, agilt-edged security is a stock or bond issued by

a company that has a strong record of

consistent earnings and can be relied on to

cover dividends and interest.


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Gilt-edged securities are a high-grade

investment with very low risk. Typically, these

are issued by blue chip companies that

dependably meet dividend or interest

payments because they are well-established

and financially stable

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Money Market Ppt 23