Money Markets

Presented by:
14P087

Mohana Kodipaka

14P088

Mukul Panchineni

14P091

Nidhi Kumar

14P102

Sameer Jain

14P105

Jaideep Sarnaik

14P110

Srijan Bhatnagar

What is Money Market?

A market for short term financial assets that are close substitute for money,
facilitates the exchange of money in primary and secondary market
The money market is a mechanism that deals with the lending and
borrowing of short term funds (less than one year)
Asegment of the financialmarket in which financial instruments with high
liquidity and very short maturities are traded
It doesnt actually deal in cash or money but deals with substitute of cash
like trade bills, promissory notes & government papers which can converted
into cash without any loss at low transaction cost
Money market investments are also called cash investments because of
their short maturities

Features of money market

It is a market purely for short-terms funds or financial assets

It deals with financial assets having a maturity period less than one year
only

Most of the money market securities are traded in very high

denominations. This limits access for the individual investors

Money markets lack a central trading floor orexchange and deals are
transacted over the phone or through electronic systems

The components of a money market are the Central Bank, Commercial

Banks, Non-banking financial companies, discount houses and
acceptance house. Commercial banks generally play a dominant in this
market

Objectives of money market

To provide a parking place to employ short-term surplus funds

To provide room for overcoming short-term deficits

To enable the Central Bank to influence and regulate liquidity in the

economy through its intervention in this market

To provide a reasonable access to users of Short-term funds to meet

their requirements quickly, adequately and at reasonable costs

Sub markets of Money market

Money Market consists of a number of sub-markets which collectively
constitute the money market
1. Call Money Market
2. Commercial Bill Market
3. Treasury Bill Market
4. Market for Certificate of Deposits (CDs)
5. Market for Commercial Papers (CPs)
6. Short Term Loan Market

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

1. Treasury Bills
2. Certificate of Deposits,
3. Commercial Papers,
4. Repurchase Agreements and
5. Banker's Acceptance

Treasury Bills

Treasury Bills are one of the safest money market instruments as they are
issued by Central Government

T-Bills can be issued in denominations of Rs.1 lakh or multiples thereof

T-Bills are circulated in both primary as well as the secondary markets.

They come with the maturities of 3-month, 6-month and 1-year

T-bills are purchased for a price that is less than theirpar (face) value;
when they mature, the government pays the holder the full par value.
Effectively, your interest is the difference between the purchase price of
the security and what you get at maturity

The buy value of the T-Bill is determined by the bidding process through
auctions. At present, the Government of India issues two types of treasury
bills through auctions, namely, 91-day, and 364-day

Certificate of Deposits (CDs)

Certificate of Deposit is like a promissory note issued by a bank/FI in form of a certificate

entitling the bearer to receive interest. It is similar to bank term deposit account. Like all time
deposits, the funds may not be withdrawn on demand

The maturity period of CDs issued by banks should not be less than 7 days and not more than
one year, from the date of issue. The FIs can issue CDs for a period not less than 1 year and
not exceeding 3 years from the date of issue.

The amount of interest you earn depends on a number of other factors such as the current
interest rate environment, how much money you invest, the length of time and the particular
bank you choose

main disadvantages of CDs are the returns are paltry compared to many other investments
and your money is tied up for the length of the CD and you won't be able to get it out without
paying a harsh penalty

Issued by (i) scheduled commercial banks {excluding Regional Rural Banks and Local Area
Banks}; and (ii) select All-India Financial Institutions (FIs) that have been permitted by RBI to
raise short-term resources within the umbrella limit fixed by RBI.

Minimum amount of a CD should be Rs.1 lakh, i.e., the minimum deposit that could be
accepted from a single subscriber should not be less than Rs.1 lakh, and in multiples of Rs. 1
lakh thereafter.

Commercial papers (CPs)

Commercial Paper is the short term unsecured promissory note issued by corporate
and financial institutions at a discounted value on face value

CP can be issued for maturities between a minimum of 7 days and a maximum of

up to one year from the date of issue.

CP can be issued in denominations of Rs.5 lakh or multiples thereof

The return on commercial papers is higher as compared to T-Bills so as the risk as

they are less secure in comparison to T-bills

The minimum credit rating shall be A-2[As per rating symbol and definition
prescribed by Securities and Exchange Board of India (SEBI)].

For the most part, commercial paper is a very safe investment because the
financial situation of a company can easily be predicted over a few months.
Furthermore, typically only companies with highcredit ratingsand credit worthiness
issue commercial paper

Repurchase Agreements

Repurchase Agreements which are also called as Repo or Reverse Repo

are short term loans that buyers and sellers agree upon for selling and
repurchasing.

Repo or Reverse Repo transactions can be done only between the

parties approved by RBI and allowed only between RBI-approved
securities such as state and central government securities, T-Bills, PSU
bonds and corporate bonds

Repurchase agreements are sold by sellers with a promise of purchasing

them back at a given price and on a given date in future

They are usually very short-term, from overnight to 30 days or more.

This short-term maturity and government backing means repos provide
lenders with extremely low risk

Banker's Acceptance

Banker's Acceptance is like a short term investment plan created by

non-financial firm, backed by a guarantee from the bank

It's like a bill of exchange stating a buyer's promise to pay to the seller a
certain specified amount at a certain date. And, the bank guarantees
that the buyer will pay the seller at a future date. Firm with strong credit
rating can draw such bill

These securities come with the maturities between 30 and 180 days and
the most common term for these instruments is 90 days

Companies use these negotiable time drafts to finance imports, exports

and other trade

Thank you