MAHATMA EDUCATION SOCIETY’S PILLAI COLLEGE OF ARTS, COMMERCE & SCIENCE (AUTONOMOUS) NEW PANVEL ACADEMIC YEAR: 2022-2023 CLASS: T.Y.B.COM. ACCOUNTING & FINANCE SEMESTER: VI SUBJECT:BUSINESS ECONOMICS III SUBMITTED TO: MISS PRANITI RAJAPURE MAAM NAME OF THE STUDENT: GAURI SANJAY CHAVAN ROLL NUMBER: 7242 TOPIC:COMPARISON OF MONEY MARKET OF INDIAN & CHINA Money Market of China • The money market in China refers to a system of financial institutions and instruments for borrowing and lending short-term funds. It includes various instruments such as certificates of deposit, commercial paper, and repurchase agreements. The People's Bank of China (PBOC), the central bank of China, is the main player in the money market, providing various types of liquidity to financial institutions through open market operations. • China's money market has experienced rapid growth in recent years, as the government has encouraged the development of the market to support economic growth and improve the monetary policy transmission mechanism. The government has also taken steps to enhance the regulation and supervision of the market to maintain stability and prevent risks. • In China, the interbank market is an important part of the money market, where financial institutions trade short-term funds with each other. The PBOC also conducts regular open market operations in the interbank market to manage liquidity in the banking system. • In addition, the development of new financial products and the increasing participation of nonbank financial institutions have also expanded the money market in China. Despite this growth, the market still faces challenges, such as a lack of standardization, limited investor protection, and the need for better market infrastructure and regulation. The Chinese money market consists of various segments that are essential for the functioning of the financial system and the economy. Some of the key segments of the Chinese money market are: 1. Interbank Market: The interbank market is a market where financial institutions lend and borrow funds from each other, typically overnight. This market is used by banks to manage short-term liquidity and to meet reserve requirements set by the central bank. 2. Certificates of Deposit (CDs) Market: CDs are debt securities issued by banks and are traded in the money market. CDs have a fixed rate of interest and a specific maturity date, and they offer a higher rate of return than regular savings accounts. 3. Treasury Bond Market: Treasury bonds are debt securities issued by the central government and are traded in the money market. They have a longer maturity period compared to CDs and are considered a safe and reliable investment. 4. Repurchase Agreement Market: Repurchase agreements, also known as "repos," are short-term borrowing transactions where one party sells securities to another party with the agreement to repurchase them at a higher price at a later date. Repos are widely used in the money market to manage short-term liquidity and provide funding for other financial instruments. Money Market of India • The money market in India refers to a segment of the financial market where short-term financial instruments such as Treasury bills, commercial papers, and certificates of deposit are traded. It is a source of short-term borrowing and lending for the government, banks, and corporates. The Reserve Bank of India (RBI) regulates the money market in India through various monetary and regulatory policies. • The main purpose of the money market is to manage short-term liquidity and to ensure stability in the financial system. The instruments traded in the money market are typically low-risk and lowreturn and are used by participants as a means of parking excess funds or to raise short-term funds. • The money market in India has seen significant growth and development in recent years, with the introduction of new instruments and the development of electronic trading platforms. The Government of India, through the RBI, has taken several steps to develop and regulate the money market, including the introduction of new instruments, the establishment of clearing and settlement systems, and the enhancement of market infrastructure. • Overall, the money market in India plays an important role in the country's financial system by providing a source of short-term funding for various participants and helping to ensure financial stability. The money market in India operates mainly through two segments - the organized segment and the unorganized segment. The organized segment includes financial institutions such as commercial banks, primary dealers, and non-banking financial companies (NBFCs), while the unorganized segment includes informal money lenders and individual lenders. • In the money market, various financial instruments with high liquidity and short maturities are traded, including: • Call money, which is short-term interbank lending • Treasury bills, which are short-term debt instruments issued by the government • Commercial papers, which are short-term unsecured promissory notes issued by corporations • Repurchase agreements, also known as repos, which are short-term collateralized borrowing transactions The RBI is the primary regulator of the money market in India and implements monetary policy through open market operations, setting of interest rates, and regulation of financial institutions. The Mumbai Interbank Offer Rate (MIBOR) is the benchmark interest rate in India and is used as a reference for pricing various financial products in the money market. COMPARISON OF MONEY MARKETS OF CHINA AND INDIA The money market in China and India have some similarities and differences. Here are some key points of comparison: 1. Size and Development: China has a much larger and more developed money market compared to India. China's money market is the second largest in the world, while India's is still in the process of expanding and growing. 2. Monetary Policy: Both China and India have centralized monetary policy and their central banks, the People's Bank of China (PBOC) and the Reserve Bank of India (RBI), have significant control over the money market. However, the PBOC has a more active role in managing the money market compared to the RBI, which tends to adopt a more hands-off approach. 3. Products and Instruments: Both China and India have a wide range of financial products and instruments traded in their money markets, including interbank deposits, certificates of deposit, Treasury bonds, and repurchase agreements. However, the Chinese money market is more sophisticated and diverse compared to the Indian market, which still has some restrictions on certain types of financial instruments. 4. Interest Rates: Interest rates in China are typically higher compared to those in India, reflecting the difference in the level of economic development between the two countries. In both countries, interest rates are set by the central bank and play a crucial role in the functioning of the money market. 5.Market Reforms: Both China and India are actively pursuing reforms to make their money markets more efficient and to better integrate with the global financial system. China has made more progress in this regard compared to India, but both countries are committed to continued reforms. In conclusion, the money markets in China and India have some similarities and differences, reflecting the different levels of economic development and monetary policy in the two countries. However, both markets play a crucial role in the functioning of the economies and are subject to ongoing reforms and development. Conclusion • In conclusion, the money markets in India and China differ in terms of size, sophistication, monetary policy, and regulatory environment. Despite these differences, both markets play a crucial role in their respective economies and are subject to ongoing reforms and development. • China has a much larger and more developed money market compared to India, reflecting the higher level of economic development in China. The People's Bank of China (PBOC) has a more active role in managing the money market, while the Reserve Bank of India (RBI) tends to adopt a more hands-off approach. The Chinese money market is more sophisticated and diverse compared to the Indian market, which still has some restrictions on certain types of financial instruments. • Despite these differences, both markets have a wide range of financial products and instruments, including interbank deposits, certificates of deposit, Treasury bonds, and repurchase agreements. Interest rates in China are typically higher compared to those in India, reflecting the difference in the level of economic development between the two countries. • Both India and China are actively pursuing reforms to make their money markets more efficient and to better integrate with the global financial system. China has made more progress in this regard compared to India, but both countries are committed to continued reforms. • Overall, the comparison of the money markets in India and China highlights the different stages of development and the different challenges faced by each market. However, both markets play an important role in the functioning of their respective economies and are subject to ongoing reforms and development. Reference • https://www.theseus.fi/bitstream/handle/10024/43538/Niemi_Timo.pdf;jsessionid=429A86DEA95 FF97EE09452BE59D8FF23?sequence=1 • https://icsin.org/uploads/2017/10/24/0c53fca087e3743ead95334ff64dc60d.pdf • https://www.fitchratings.com/research/fund-asset-managers/chinese-money-market-fund-marketto-continue-expanding-11-08-2022
