25066343 indian money market

8/8/2019 25066343 Indian Money Market

1/17

INDIAN MONEYINDIAN MONEYMARKETMARKET


2/17

CONTENTSCONTENTS


3/17

WHAT IS MONEY MARKET?WHAT IS MONEY MARKET?

AsAs perper RBIRBI definesdefines MoneyMoney MarketMarket asas AA marketmarket forforshortshort termsterms financialfinancial assetsassets thatthat areare closeclosesubstitutesubstitute forfor money,money, facilitatesfacilitates thethe exchangeexchange ofofmoneymoney inin primaryprimary andand secondarysecondary marketmarket..

TheThe moneymoney marketmarket isis aa mechanismmechanism thatthat dealsdealswithwith thethe lendinglending andand borrowingborrowing ofof short short termtermfundsfunds (less(less thanthan oneone year)year)..

AA segmentsegment ofof thethe financialfinancial marketmarket inin whichwhichfinancialfinancial instrumentsinstruments withwith highhigh liquidityliquidity andand veryveryshortshort maturitiesmaturities areare tradedtraded..


4/17

Continued.Continued.

ItIt doesntdoesnt actuallyactually dealdeal inin cashcash oror moneymoneybutbut dealsdeals withwith substitutesubstitute ofof cashcash likelike tradetrade

bills,bills, promissorypromissory notesnotes && govt govt paperspaperswhichwhich cancan convertedconverted intointo cashcash withoutwithout anyanylossloss atat lowlow transactiontransaction costcost..

ItIt includesincludes financialfinancial institutionsinstitutions andandintermediariesintermediaries (RBI,(RBI, Banks,Banks, PDs,PDs, MFs,MFs,InsuranceInsurance coscos..,, StateState govt govt..,, providentprovident

funds,funds, NRIs,NRIs, largelarge corporatecorporate investorsinvestors..))..


5/17

FEATURES OF MONEYFEATURES OF MONEY

MARKET?MARKET? ItIt isis aa marketmarket purelypurely forfor shortshort--termsterms fundsfunds oror

financialfinancial assetsassets calledcalled nearnear moneymoney..

ItIt dealsdeals withwith financialfinancial assetsassets havinghaving aa maturitymaturityperiodperiod lessless thanthan oneone yearyear onlyonly..

InIn MoneyMoney MarketMarket transactiontransaction cancan notnot taketake placeplaceformalformal likelike stockstock exchange,exchange, onlyonly throughthrough oraloralcommunication,communication, relevantrelevant documentdocument andand writtenwrittencommunicationcommunication transactiontransaction cancan bebe donedone..


6/17

Continued..Continued..

TransactionTransaction havehave toto bebe conductedconducted withoutwithout thethehelphelp ofof brokersbrokers..

ItIt isis not not aa singlesingle homogeneoushomogeneous market,market, ititcomprisescomprises ofof severalseveral submarketsubmarket likelike callcall moneymoneymarket,market, acceptanceacceptance && billbill marketmarket..

TheThe componentcomponent ofof MoneyMoney MarketMarket areare thethecommercialcommercial banks,banks, acceptanceacceptance houseshouses && NBFCNBFC(Non(Non--bankingbanking financialfinancial companies)companies)..


7/17


8/17

FINANCIAL SECTORFINANCIAL SECTOR

REFORMSREFORMS

oo ObjectObject of of financialfinancial sectorsector reformsreforms bybyGovernmentGovernment ofof IndiaIndia && RBIRBI..

oo ConditionCondition ofof moneymoney marketmarket beforebefore PrePrereformreform periodperiod (Before(Before 19911991))

oo SukkmoySukkmoy ChakravarthiChakravarthi Committee(Committee( 19851985))

oo VaghulVaghul Committee(Committee( 19851985--9191))


9/17

The Role of the Reserve BankThe Role of the Reserve Bank

of India in the Money Market:of India in the Money Market:The Reserve Bank of India is the most important constituent of theThe Reserve Bank of India is the most important constituent of themoney market. The market comes within the direct preview of themoney market. The market comes within the direct preview of theReserve Bank of IndiaReserve Bank of India regulations.Theregulations.The aims of the Reserve Banksaims of the Reserve Banksoperations in the money market are:operations in the money market are:

To ensure that liquidity and short term interest rates are maintainedTo ensure that liquidity and short term interest rates are maintainedat levels consistent with the monetary policy objectives ofat levels consistent with the monetary policy objectives ofmaintaining price stability.maintaining price stability.

To ensure an adequate flow of credit to the productive sector of theTo ensure an adequate flow of credit to the productive sector of theeconomy andeconomy and

To bring about order in the foreign exchange market.To bring about order in the foreign exchange market. The Reserve Bank of India influence liquidity and interest ratesThe Reserve Bank of India influence liquidity and interest rates

through a number of operating instrumentsthrough a number of operating instruments -- cash reservecash reserverequirement (CRR) of banks, conduct of open market operationsrequirement (CRR) of banks, conduct of open market operations(OMOs), repos, change in bank rates and at times, foreign exchange(OMOs), repos, change in bank rates and at times, foreign exchangeswap operations.swap operations.


10/17

Factors affecting MoneyFactors affecting Money

MarketsMarketsInterest Rate/ YieldInterest Rate/ Yield-- Market expectationsMarket expectations

& risk premium& risk premium

Mss/ LiquidityMss/ Liquidity -- RBI Monetary PolicyRBI Monetary Policy

InflationInflation-- Fiscal Deficit/ Govt. borrowingFiscal Deficit/ Govt. borrowing

Cyclical trends in the EconomyCyclical trends in the Economy

ForexForex reserves/ Exchange Ratereserves/ Exchange Rate


11/17


12/17

Treasury Bills (TTreasury Bills (T--Bills)Bills)

(T(T--bills)bills) areare thethe mostmost marketablemarketable moneymoney marketmarketsecuritysecurity..

TheyThey areare issuedissued withwith threethree--month,month, sixsix--monthmonthandand oneone--yearyear maturitiesmaturities..

TT--billsbills areare purchasedpurchased forfor aa priceprice thatthat isis lessless thanthantheirtheir par(face)par(face) valuevalue;; whenwhen theythey mature,mature, thethe

governmentgovernment payspays thethe holderholder thethe fullfull parpar valuevalue.. TT--BillsBills areare soso popularpopular amongamong moneymoney marketmarket

instrumentsinstruments becausebecause ofof affordabilityaffordability toto thetheindividualindividual investorsinvestors..


13/17

Continued..Continued..

They are highly liquid as they are ofThey are highly liquid as they are ofshorter tenure and there is a possibility ofshorter tenure and there is a possibility ofan interbank repos on them.an interbank repos on them.

They have an assured yield, lowThey have an assured yield, lowtransaction cost, and are eligible fortransaction cost, and are eligible forinclusion in the securities for SLR purposeinclusion in the securities for SLR purpose

Recently TRecently T--Bills are also being issuedBills are also being issuedfrequently under the Market Stabilizationfrequently under the Market StabilizationScheme (MSS).Scheme (MSS).


14/17

Advantages of investing in TAdvantages of investing in T--

Bills:Bills:

No Tax Deducted at Source (TDS)No Tax Deducted at Source (TDS)

Zero default risk as these are the liabilitiesZero default risk as these are the liabilities

of GOIof GOI Liquid money Market InstrumentLiquid money Market Instrument

Active secondary market thereby enablingActive secondary market thereby enabling

holder to meet immediate fundholder to meet immediate fundrequirement.requirement.


15/17

Amount & AuctionAmount & Auction

Treasury bills are available for a minimum amount ofTreasury bills are available for a minimum amount ofRs.25,000 and in multiples of Rs. 25,000. Treasury billsRs.25,000 and in multiples of Rs. 25,000. Treasury billsare issued at a discount and are redeemed at par.are issued at a discount and are redeemed at par.Treasury bills are also issued under the MarketTreasury bills are also issued under the MarketStabilization Scheme (MSS). They are available in bothStabilization Scheme (MSS). They are available in bothPrimary and Secondary market.Primary and Secondary market.

The 91The 91--day Tday T--bills are auctioned every week onbills are auctioned every week onWednesdays, 182 days and 364Wednesdays, 182 days and 364--day Tday T--bills are auctionedbills are auctioned

every alternate week on Wednesdays. The Reserve Bankevery alternate week on Wednesdays. The Reserve Bankof India issues a quarterly calendar ofTof India issues a quarterly calendar ofT--bill auctionsbill auctions


16/17

ConclusionConclusion

Lastly concluded that the Indian money market plays aLastly concluded that the Indian money market plays avital role in the Indian financial system. It is a short termvital role in the Indian financial system. It is a short termmarket where the liquidity is very high. The governmentmarket where the liquidity is very high. The governmentsecurities are traded in a short term period. It mobilizingsecurities are traded in a short term period. It mobilizingthe financial assets in the various sectors and traded bythe financial assets in the various sectors and traded bythe banks and other financial intermediaries. This marketthe banks and other financial intermediaries. This marketregulates by the primary dealers where the STCI &regulates by the primary dealers where the STCI &

SBIDFHI plays a pivotal role. These institution regulatesSBIDFHI plays a pivotal role. These institution regulatesthe market. So this market is very much needed for thethe market. So this market is very much needed for thefinancial institutions to meet the need of short term debtfinancial institutions to meet the need of short term debtin the market.in the market.


17/17

Thank youThank you

25066343 indian money market

Documents