MONEY MARKET

KANUPRIYAASSISTANT PROFESSOR COMMERCE DEPARTMENT

GCG-11,CHANDIGARH

CONTENTS

• INTRODUCTION

• CHARACTERISTICS OF MONEY MARKET

• SIGNIFICANCE OF MONEY MARKET

• STRUCTURE OF MONEY MARKET

• DEFECTS OF INDIAN MONEY MARKET

• SUGGESTIONS FOR IMPROVEMENTS

• SUMMARY

INTRODUCTION

FINANCIAL MARKETS

CAPITALMARKET

MONEYMARKET

Continued….

• The money market is a mechanism thatdeals with the lending and borrowing ofshort term funds (less than one year).

• A segment of the financial market inwhich financial instruments with highliquidity and very short maturities aretraded.

Continued…….

• It doesn’t actually deal in cash or moneybut deals with substitutes of cash liketrade bills, promissory notes & govtpapers which can be converted into cashwithout any loss at low transaction cost.

• It includes all individual, institution andintermediaries.

CHARACTERISTICS

• It is a market dealing with short term funds or financial assets.

• These financial assets have a maturity period of upto one year.

• Financial assets can be easily converted into cash.

• It consists of various sub markets like call money market, bill market etc.

• Central bank, commercial bank, financial institutions are main constituents of money market.

SIGNIFICANCE

• ECONOMIC DEVELOPMENT• PROFITABLE INVESTMENT• BORROWING BY GOVERNMENT• IMPORTANCE TO CENTRAL BANK• MOBILISATION OF FUNDS• HELPFUL IN SELF SUFFICIENCY OF

COMMERCIAL BANKS• SAVING AND INVESTMENT

STRUCTURE OF MONEY MARKET

MONEY MARKET

COMPONENTS INSTITUTIONS INSTRUMENTS

COMPONENTS

MONEY MARKET

CALL

MONEY MARKET

COLLATERALLOAN MARKET

ACCEPTANCEMARKET

BILL MARKET

CALL MONEY MARKET

• MARKET FOR VERY SHORT PERIOD

• MAINLY DEALS WITH ONE DAY LOANS

• LOAN PERIOD DOES NOT EXCEED SEVEN DAYS

• LOANS ARE GENERALLY MADE WITHOUT ANY COLLATERAL SECURITY

• LOW RATE OF INTEREST

• HIGH LIQUIDITY

COLLATERAL LOAN MARKET

• LOANS ARE GIVEN FOR FEW MONTHS.

• LOANS ARE BACKED BY SECURITIES.

• COLLATERAL MONEY IS RETURNED WHEN LOAN IS REPAID.

• LOANS ARE GENERALLY ADVANCED BY COMMERCIAL BANKS TO PRIVATE PARTIES IN THE MARKET.

ACCEPTANCE MARKET

• MARKET FOR BANKER’S ACCEPTANCES

• OLD FORM OF COMMERCIAL CREDIT

• DRAFTS DRAWN UPON A BANK ARE ACCEPTED AND ARE PAYABLE ON A SPECIFIED FUTURE DATE

BILL MARKET

• MARKET WHERE BILLS ARE BOUGHT AND SOLD

• DEALS IN SHORT TERM PAPERS LIKE BILLS OF EXCHANGE AND TREASURY BILLS

• BILLS OF EXCHANGE ARE COMMERCIAL PAPERS

• TREASURY BILLS ARE GOVERNMENT PAPER SECURITIES

INSTITUTIONS

• CENTRAL BANK

• COMMERCIAL BANKS

• INSURANCE COMPANIES

• ACCEPTANCE HOUSE

• BILL BROKERS

• BUSINESS CORPORATIONS

MONEY MARKET INSTRUMENTS

TREASURYBILLS

CERTIFICATEOF

DEPOSITS

CALL ANDSHORT NOTICE

MONEY

REPURCHASE AGREEMENTS

COMMERCIALPAPERS

COMMERCIALBILLS

INSTRUMENTS

DEFECTS OF INDIAN MONEY MARKET

EXISTENCE OF UNORGANISED SECTOR

LACK OF COORDINATION

LACK OF DEVELOPED BILL MARKET

SHORTAGE OF FUNDS

LACK OF UNIFORMITY IN INTEREST RATES

LACK OF WELL ORGANISEDBANKING SYSTEM

UNDERDEVELOPED BANKING HABITS

DEFECTS

OF

IMM

SUGGESTIONS FOR IMPROVEMENTS

CONTROL OVERINDIGENOUS

BANKING

REORGANISED CLEARINGHOUSES

DEVELOPMENT OF BILLMARKET

QUICKER REMITTANCE

FACILITY

MORE MARKET

PARTICIPANTS

ADVANCED INFORMATIONTECHNOLOGY

REDUCTION OFDISCOUNT RATES

ESTABLISHMENTOF ACCEPTANCE

HOUSE

REMOVAL OFVARIATIONS ININTEREST RATES

SUMMARY

• The money market specializes in debtsecurities that mature in less than one year.

• Money market securities are very liquid, andare considered very safe.

• With the globalisation of Indian economy,the Indian money market has to be geared upto become a significant instrument forgrowth .

• Central bank and government have to takefurther steps to improve the working ofmoney market.

THANK YOU