MONEY MARKET
Money Market is the part of financial market where instruments with high liquidity and very short-term maturities are traded. It's the place where large financial institutions, dealers and government participate and meet out their short-term cash needs. Due to highly liquid nature of securities and their short-term maturities, money market is treated as safe place.
Role of Reserve Bank of India: The Reserve Bank of India (RBI) plays a key role of regulator and controller of money market.
Short Term Deposit: In deposit terminology, the term Short Term Deposit refers to an amount of money placed in a bank or financial institution for a term no longer than one year. A Short Term Deposit will usually earn a fixed rate of interest.
Note: Short Term Deposits are also known as time or term deposits, with perhaps the most popular name being short term certificates of deposit or CDs.
Call Money: Call Money’ is the borrowing or lending of funds for 1day.
Notice Money: Money borrowed or lend for period between 2 days and 14 days it is known as ‘Notice Money’
Term Money: Term Money refers to borrowing/lending of funds for period exceeding 14 days
Money Market Instruments: Money Market Instruments provide the tools by which one can operate in the money market. Money market instrument meets short
term requirements of the borrowers and provides liquidity to the lenders.
The most common money market instruments are
Treasury Bills (T-Bills): Treasury Bills are one of the safest money market instruments as they are issued by Central Government. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments.
Amount: Treasury bills are available for a minimum amount
of Rs.25,000 and in multiples of Rs. 25,000.
Commercial Paper (CP) - Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.
Who can issue CP - Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP.
Minimum and maximum period of maturity for CP: be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue. However, to which the credit rating of the issuer is valid.
In what denominations a CP that can be issued:
Who can invest in CP: Individuals, banking companies, unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs.
Certificate of Deposit (CD) is a negotiable money market instrument
Promissory Note against funds deposited at a bank or other eligible financial institution for a specified time period.
Who can issue CD: CDs can be issued by (i) scheduled commercial banks {excluding Regional Rural Banks}; and (ii) select All-India Financial Institutions (FIs) that have been permitted by RBI to raise short within the umbrella limit fixed by RBI.
Minimum and maximum period of maturity for CD: 7 days and not more than one year, from the date of issue.
Note: The FIs (Financial Institutions) can issue CDs for a period not less than 1 year and not exceeding 3 years from the date of issue.
Minimum Size of Issue and Denominations: Minimum 1 lakh, that could be accepted from a single subscriber should not be less than Rs.1 lakh, and in multiples of Rs. 1 lakh thereafter.
