Money Market and
Government Securities Market
• Money market is the market for dealing in
monitory assets of short term maturity.
• Short term funds up to one year and
financial assets that are close substitutes
for money are dealt in the money market.
• Instruments in the money market are
liquid, with less transaction cost and no
loss in value.
• It provides the crucial function of providing
a equilibrium in the short term liquidity of
the market.
Features:
1. Wholesale market with large volume
2. Daily settlement
3. Telephonic deal confirmed by written
contracts by borrowers and lenders
4. Large number of participants including
banks and mutual funds.
5. RBI is at the centre of all the activity
which borrow or sale money and
securities in the market
Instruments:
The money market instruments comprise of :
1. Call money (over night borrowing upto 14
days)
2. Certificate of Deposit (CD)
3. Commercial Paper (CP)
4. Money market mutual funds and
5. Commercial bills
6. Treasury bills and
7. Inter corporate lending
Call/Notice money market:
1. Used to be predominantly inter-bank
market till 1987.
2. DFHI was set up in 1988 and STCI was
set up in 1994 to provide easy access to
money market instruments
3. 11 MF approved by SEBI along with GIC,
IDBI, NABARD, DFHI and STCI and al
the banks are allowed to participate in
the market.
4. Minimum size is Rs.3 crore per deal.
6. All lending to be routed trough DFHI as
call deposit receipt
8. Transaction are reversed the next day
9. In case of requirement of fund DFHI can
use Deposit receipts
10. In 1999 non banks were allowed in
limited way to participate
Term Money Market:
1. Dominate the market
2. RBI has actively looked into facilitating the
market
Treasury Bill:
1. They can range from 14 days, 91 days 182
days and 364 days treasury bill not issued as
scripts.
2. Effected trough the Securities General Ledger
(SLG)
3. Government can suspend the any treasury bill
from operating at any point of time
Certificate of Deposit:
1. They are like term deposit
2. Bulk is of 1, 3 and 6 months. However
they vary from 2 weeks to 5 years in
term.
3. They are bearer short term negotiable
instrument mostly issued by banks
4. CD are issued at face value
5. They can be tailor made
Commercial Paper:
1. Can be issued by companies with tangible net
worth not less than Rs. 5 cr. And has fund
based working capital not less than Rs.4 cr.
Should have a current ratio of 1.33:1
2. Minimum issuance period 30 days with no
grace period and maximum of 1 year.
3. Denomination of Rs. 5 lakhs and minimum lot
of 5.
4. Mode: unsance promissory note
5. Can be issued to any person or institute
6. Issued through banks who have sanctioned
working capital limits of the company.
Commercial Bill Market:
1. Are bills drawn as a part of commercial
activity
2. Banks give discounting facility for such
bills which acts as cash buffer.
3. Financial institutions participate in the
process of the bill discounting
Money Market Mutual Funds:
1. Enable the small investors to participate
in the money market
2. They are mostly set up by scheduled
commercial bank
Secondary market for Money market
instruments:
Both DFHI and STCI actively help in
rediscounting and purchasing and selling
of money market instruments and
therefore help in creating a secondary
market.