Indian Money Market

Indian Money Market:Introduction

Money market is a market where borrowing and lending of money takes place for short period of time between few hours to a year.It is a biggest debt  market  in the world where transaction of large value takes place for shorter period of time.

In money market large player are taking part in borrowing and lending like Government,RBI,Banks,Mutual Funds,PSU's(Public Sector Undertaking),Provident Fund,NBFC's(Non Banking Finance Company).

There are various instruments in Money market like Call Money market,Treasury Bills,Certificate of Deposit,Repo,Forward rate agreement,Interest rate swap.

Role of Money Market:

1. Money market fulfill the short term financial need of the economy through Banks participant.

2.It also hepls RBI for making effictive monetary policy by watching liquidity position of the economy.

3.Money Market provide short term fund to the Government for meeting any funds requirement for any disaster.

Structure of Indian Money Market:
1.Call Money Market:It is a market in which Banks,Corporations,Financial institution borrow and lend money at iner-bank rate for a short duration of time,may be for few hours and not lonfer then a week.This helps banks to meet there reserve requirements.
       Features of Call money market:

       1.1 It helps in trading of surplus money between banks.

        1.2 It's Duration is between one day to 15 days.
        1.3 If money lend/borrowed is for one day then it is called Call money otherwise called  Notice     money .
        1.4 It hepls RBI to maintain cash liquidity.
        1.5 It hepls HNI's to save there interest cost on cash credit.
        1.6 It's high demand in march because of corporate tax payment.
        1.7 It's demand changes with the change in CRR.

2.Treasury Bill market:These is a market in which treasury bill has been traded.Treasury bill is a instrument of short term  borrowing by the Government of india,issued as a promessory note under discount.It is classified on the basis of maturity period of 91 days TB's,182 days TB's,364 days TB's.Teasury bills are secured types of debt instruments backed by Central Government.

        Features of Treasury Bill :

         2.1 It is like the Overdraft(OD) for the Private sector.

         2.2 It is high liquid instrument,easy converted into cash.

         2.3 It is eligible for the  SLR criteria for the bank to maintain it.

       2.4 It has a ways to means advance (WMA) system to cover day to day mismatch of                Government revenue and Expenditure.

         2.5 It issued by RBI on the behalf of Govenment.

         2.6 RBI still the major holder of T Bills.

       
3. Commercial Bill market:It is a market where Commercial bill is traded.Commercial bill is a short term debt instrument issued by any public or private corporation.It is issued to finance short term liabilities,account recievable,inventories ect.Maturity of comercial bill not longer than 270 days.It carry fixed interest rate and issued at discounted rate.

        Features of Commercial Bill:

        3.1 It is not backed by any form of collateral,so the company with high debt rating can easy find buyer without offering discount.

       3.2 Main benifit of commercial billis that it that it does not resitered with SEBI as long as they mature before 270 days.

     

        Types of Commercial Bills:

        1.Bill of Exchange: These are the non- interest bearing instrument issued by individual or corporation in order to bind one part to pay sum of money to another party at predetermine furture date.

        2.Demand Bill:These are the bills payable on the basis of demand of any corporations.

        3.Time or Usance Bill :These are the allowable period of time between date of bill anf it's payment.It is permitted by customes.

        4.Documentary Bill:These are the Bill of Exchange,presented in international trading for payments with the required documents like clean bill of lading,certificate of insurance,certificate of origin ect.

        5.Inland Bill:It is document required for any transporter to transport goods on land  via truks or trains.In inland bill specified detail of good transported such as quantity,type and destination.

        6.Foreign Bill:It is a bill drawn in one county and made payment in another country.This is mostly use in foreign trade.

     

Commercial Papers(CP's) & Certificate of DepositsCD's):

1.Commercial Papers(CP's): CP's are the maoney market instruments issued by the private or public ltd companies to meet there short term debts obligations.Companies issue CP's on face value,promiss to pay the amount on maturity which is short term from 30 days to 270 days.

Commercial Paper(CP's) Guidelines:

1.1 Company issued CP's should not have the Tangible networth less then 4crores.

1.2 Companies working capital limit should not be less then 4 crores.

1.3 Companies can issued CP's upto the extent of 75% of WCL(working capital limit).

1.4  Minimum denomination should be 5 lakhs and Minimum size should be 25 lakhs to single investors.

1.5 Credit rating of the company issued CP's should not be older then 2 month.

1.6 Companies issuing CP's are not required to take prior approvals from RBI.

 

 2.Certificate of Deposit(CD's):These are the saving certificate which carry a fixed interest rate,fixed maturity and issued in any denomination.These certificate of deposit are promissory note issued by Banks or Financial institutions.Populary it is known as Negotiable Certificate of Deposits(NCD's).There maturity is between two weeks to 5 years,but most commonly nine days.CD's can be issued to Corporate clients to Mutual Funds.Almost every person NBFC's to state Govt. can buy.

Concepts of Repo and Reverse Repo:

Repo rate:It is rate of interest at which Central Bank of any country(in india RBI) lend money to any Commercial Bank in case of any shortfall of fund.
UTI,NBFC's,LIC ect are not allow to participate in Repo rates.

 Reverse Repo rate: It is a rate of interest at which Central Bank(RBI) can Borrow money from Commercial Banks within the country.it is a monetary policy instrument which can be use to control the money supply withn the country.