MONEY MARKET INSTRUMENTS

CALL MONEY MARKET

Call money market is important segment of money market. Borrowing and lending in call money market are for short duration ranging from overnight to a fortnight. Call loans are repayable on demand at the option of the borrower or lender or at very short notice. Call loans are therefore very liquid, next to cash. Call / notice money is the money borrowed or rent on demand for a very short period. When money is borrowed or rent for a day, it is known as call (overnight) Money.

Participants in Call Money

Commercial banks, both Indian and foreign

Co-operative banks

DFCHI

STCI

Primary dealers

TREASURY BILL MARKET

Treasury bill (TBs) are an important instrument of short term borrowing by the government. They have been used as a tool of monetary management in the economy because their purchase and sale and the yield rate on TBs have an impact on liquidity in the economy and the interest rate structure. TBs are the promissory notes or a kind of finance bill issued by the government under discount for a fixed period, not extending beyond one year, with a promise to pay the amount stated therein to the bearer of the instrument. TBs are used by the government for raising short term funds from institutions or the public for bridging temporary gaps between receipts (both revenue and capital) and expenditure.

Participants in treasury bills market

The reserve bank of india

State bank of india

Commercial banks

State government and other approved bodies

Discount and finance house of India (DFHI) as a market maker in TBs,

Corporate entities

Other financial institutions such as LIC ,UTI, GIC, NABARD IDBI, IFCI AND ICICI  ETC..

BILL REDISCOUNTING SCHEME ( BRS )

A bill of exchange is a written instrument containing an unconditional order, signed by the maker ( called drawer), directing a certain person ( called drawee ) to pay a certain sum of money specified in the instrument, only to, or to the order of, a certain person ( called payee ), or to the bearer of the instrument on demand or at the expiry of a specified period. Bill of exchange is a negotiable instrument.

Money Market and Capital Market

follow the below link to read about Finance market in india :-

http://whatisstockandfinancialmarket.blogspot.com/2011/02/what-is-financial-market.html

Money Market and Capital Market

Money Market is a market for short term financial assets which are near substitutes for money. Money markets instruments are liquid and can be turned over quickly at low transaction cost and without loss. Money market instruments are for short duration, generally defined as less than a year.

Capital Market generally deals in financial assets other than near substitute’s i.e long term primary and secondary issues, claims or securities of maturity period of more than one year.

MONEY MARKET

1. Money Market is basically over the phone market. The transactions are conducted through oral communications.
2. Dealing in money market may be conducted with or without the help of brokers.
3. It is market for short term financial assets that are close substitutes for money.
4. Short term for this purpose is generally taken as a period up to one year.
5. Money market consists of many sub-markets, such as inter-bank call money, bill rediscounting, treasury bills etc. collectively, they constitute the money market
6. Financial assets which can be converted into money with ease speed, without loss and with minimum transactions cost are regarded as close substitutes for money or near-money.

CHARACTERSTICS MONEY MARKET INSTRUMENTS

I. SHORT DURATION

Duration of money market instruments is maximum up to one year in each case –ranging from one day for call loans to one year for 364 day treasury bills and CDs. Day light loans ( i.e for less than one day) also exist in some developed market.

ii. HIGH LIQUIDITY

These instruments are highly liquid. They can be easily and quickly converted into cash at low transaction cost and without loss. Therefore, they called near money or close to money.

iii. HIGH SAFETY

Money market instruments are highly safe with near zero risk of default due to financial soundness of issuers. The issuers are Government of India (treasury bills), scheduled commercial banks (BRS AND CDs), public financial (CDs), highly rated public and private corporate bodies (CPs and securities debt).

iv. RESTRICTED PARTICIPANTS

Besides RBI, DFHI (discount and finance house of India) and STCI (securities trading corporation of India), dealings in these instruments are restricted to scheduled commercial banks, public financial institutions and select corporate entities. Commercial banks can buy and sell any of these instruments without any restriction.

v. LARGE VOLUME

Each single money market instruments is of large amount. A treasury bill is minimum of 1lkh; each CD (commercial deposits) is for least rs.25 lakh: and the minimum amount for a single commercial bill rediscounting and call loan is rs.10 crore. A single transaction of rs.100 crore or ore than is common in case of call loans

MONEY MARKET INSTRUMENTS

Money market instruments operating in Indian money market are:

1. Money at call and short notice ( call loans )
2. Treasury bills (TBs)—14 day TBs (introduced in May 1997) ,28 day TBs (introduced in October 1997), 91day TBs, 182 day TBs, 364 day Tabs’
3. Bill rediscounting scheme BRS
4. Certificates of deposits. CDs
5. Commercial papers CPs
6. Repurchase options or ready forward (REPOs or RF)
7. REPOS and REVERSE REPOS
8. Options
9. Financial futures
10. Forward rate agreements
11. Swaps
12. Collateralized borrowing and lending obligations.

CALL MONEY MARKET

Call money market is important segment of money market. borrowing and lending in call money market are for short duration ranging from overnight to a fortnight. Call loans are repayable on demand at the option of the borrower or lender or at very short notice. Call loans are therefore very liquid, next to cash.

DIFFRENCE BETWEEN PRIMARY MARKET/NIM AND SECONDARY MARKET /STOCK EXCHANGES

PRIMARY MARKET / NIM (new issue market)	SECONDARY MARKET / STOCK EXCHANGE
MARKET FOR NEW SECURITIES	MARKET FOR EXISTNG SECRITIES
NO FIXED GEOGRAPHICAL AREA	LOCATED AT FIXED PLACE
ALL COMPANIES ENTER NEW ISSUE MARKET (NIM)	SECURITIES OF ONLY LISTED COMPANIES CAN BE TRADED AT STOCK EXCHANGE
SUBJECTED TO CONTROL OUTSIDE BY SEBI,STOCK EXCHANGE AND THE COMPANIES ACT	SUBJECTED TO CONTROL BOTH FROM OUTSIDE AND WITH IN BY SEBI AND COMPANIES ACT
RESULTS IN RAISING FRESH RESOURCES FOR THE CORPORATE SECTOR	FACILITATES TRANSFER OF SECURITIES FROM ONE CORPORATE INVESTOR TO ANOTHER