Money Market

The market that deals with

short term fund requirements &
provides with immediate
liquidity is called the Money
Market.
 Need for Money Market

To accommodate short term surplus or

deficit position in terms of liquidity or
cash
 Money Market Player
Player Role
1. Central Bank Intermediary/Regulatory
2. Government Borrower/Issuer
3. Banks Borrower/Issuer
4. Discount Houses Market Makers
5. Acceptance Houses Market Makers
6. FIs Borrower/Issuer
7. FIIs Investors
8. Dealers Intermediary
9. Corporates Issuer
 Money Market
Instruments

Banking Sector Pvt. Sector

Govt. Securities
Securities Securities

1. Commercial Paper
1. Call & Notice Money Market
2. Bills of Exchange
1. Treasury Bills 2. Term Money Market
3. Inter Corporate deposits
2. Govt. Dated Securities 3. Certificates of deposits
4. MMMF
4. Participation Certificates
5. Bonds/ Debentures
 Govt. Securities
1. Central Bank issues Govt. Securities on
behalf of Govt.
2. Most Risk Free Securities
3. Benchmark for the interest rates of other
Money Market Securities

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 Treasury Bills
1. Issued to meet short term liquidity requirement
of Govt.
2. Maturity period varies from fortnight to year
3. Issued at Discount to the Face Value
4. Considered as risk free
5. Highly Marketable
6. Investors in T-bills include banks & other
institutional investor

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 Govt. Dated Securities
1. Short to medium term security
2. Issued with Coupon rate
3. Comparatively longer term security but
due to liquidity form part of MM
4. Benchmark for long term interest rates

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 Banking Sector
Securities
1.Call & Notice Money Market

 Maturity period of one day to fortnight

 In the call money funds are lent for a predetermined

maturity period that can range from one day to fortnight

 However in Notice Money lender issues 2-3 day notice to

borrower for repayment.
 Term Money Market
 Short term funds having a maturity of 15
days to a year
 Funds are borrowed and lent without
collateral
 Banks use it for greater stability in short
term deficits
 Certificates of deposits
 Banks issue CDs with a maturity period of 7
days to year
 CDs are issued to individuals, Corporates,
Institutions.
 Unsecured promissory notes
 Negotiable instrument
 Transferable
 Issued at discount to face value
 Form part of deposit & attract reserve
requirement
 Participation Certificates

 Banks share their credit assets through

PCs or IBPs.