50 50 money market pptx
TRANSCRIPT
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MONEY MARKET
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CONTENTS:
What is Money Market?
Features of Money Market?
Structure of Money Market?
Types of money market ? Composition of Money Market?
Instrument of Money Market?
Shortcomings and suggestions to improve of Money
Market?
Recent development in money market ?
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MONEY MARKET
FINANCIALMARKETS
MONEYMARKET
CAPITALMARKET
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WHAT IS MONEY MARKET
As per RBI definitions A market for shortterms financial assets that are close substitutefor money, facilitates the exchange of money inprimary and secondary market.
The money market is a mechanism that dealswith the lending and borrowing of short termfunds (less than one year).
A segment of the financial market in whichfinancial instruments with high liquidity and veryshort maturities are traded.
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CONTINUED..
It doesnt actually deal in cash or money but
deals with substitute of cash like trade bills,
promissory notes & government papers whichcan converted into cash without any loss at low
transaction cost.
It includes all individual, institution andintermediaries.
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MARKET
Dichotomy
role of inter bank
difference in rate of interest
lack of organised bill marketseasonal nature
Lack of acceptance and discount houses
abundance of money lenders and indigenous
bankers
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OBJECTIVES OF MONEY
MARKET
Development of trade & industry.
Development of capital market.
Smooth functioning of commercial banks.
Effective central bank control.
Formulation of suitable monetary policy.
Non inflationary source of finance to government.
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STRUCTURE OF INDIAN MONEY
MARKET
I :- ORGANISED STRUCTURE
1. Reserve bank of India.
2. DFHI (discount and finance house of India).3. Commercial banks
i. Public sector banks
SBI with 7 subsidiariesCooperative banks20 nationalized banks
ii. Private banksIndian Banks
Foreign banks4. Development bank
IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTIetc.
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CONTINUED..
II. UNORGANISED SECTOR1. Indigenous banks2 Money lenders3. Chits4. Nidhis
III. CO-OPERATIVE SECTOR1. State cooperative
i. central cooperative banksPrimary Agri credit societiesPrimary urban banks
2. State Land development bankscentral land development banksPrimary land development banks
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COMPOSITION OF MONEY
MARKET
Money Market consists of a number of sub-markets
which collectively constitute the money market.
They are,
Call Money Market
Commercial bills market or discount market
Acceptance market
Treasury bill market
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INSTRUMENT OF MONEY
MARKET
A variety of instrument are available in a developed
money market. In India till 1986, only a few instrument
were available.
They were
Treasury bills
Money at call and short notice in the call loan market.
Commercial bills, promissory notes in the bill market.
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NEW INSTRUMENT
Now, in addition to the above the following newinstrument are available:
Commercial papers.
Certificate of deposit. Inter-bank participation certificates.
Repo instrument
Banker's Acceptance
Repurchase agreement Money Market mutual fund
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COMMERCIAL PAPER (CP)
CP is a short term unsecured loan issued by acorporation typically financing day to day operation.
CP is very safe investment because the financialsituation of a company can easily be predicted over afew months.
Only company with high credit rating issues CPs.
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TREASURY BILLS (T-BILLS)
(T-bills) are the most marketable money marketsecurity.
They are issued with three-month, six-month and one-
year maturities. T-bills are purchased for a price that is less than theirpar(face) value; when they mature, the government paysthe holder the full par value.
T-Bills are so popular among money marketinstruments because of affordability to the individualinvestors.
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CERTIFICATE OF DEPOSIT (CD)
A CD is a time deposit with a bank.
Like most time deposit, funds can not withdrawnbefore maturity without paying a penalty.
CDs have specific maturity date, interest rate and itcan be issued in any denomination.
The main advantage of CD is their safety.
Anyone can earn more than a saving accountinterest.
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REPURCHASE AGREEMENT (REPOS)
Repo is a form of overnight borrowing and is used
by those who deal in government securities.
They are usually very short term repurchases
agreement, from overnight to 30 days of more.
The short term maturity and government backing
usually mean that Repos provide lenders with
extreamly low risk.
Repos are safe collateral for loans.
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BANKER'S ACCEPTANCE
A bankers acceptance (BA) is a short-term creditinvestment created by a non-financial firm.
BAs are guaranteed by a bank to make payment. Acceptances are traded at discounts from face valuein the secondary market.
BA acts as a negotiable time draft for financingimports, exports or other transactions in goods.
This is especially useful when the credit worthiness ofa foreign trade partner is unknown.
CHARACTERISTIC FEATURES
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CHARACTERISTIC FEATURES
OF A DEVELOPED MONEY
MARKET
Highly organized banking system
Presence of central bank
Availability of proper credit instrumentExistence of sub-market
Ample resources
Existence of secondary market
Demand and supply of fund
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SHORTCOMINGS:
Absence of co-operation and co-ordination betwnorganised and unorganised sector
Competition of members in the individual sector
No all india money market
Lack of uniformity in interest rate Seasonal financial stringency
Lack of adequate banking facilty
Shortage of funds in money market
Lack of control over indigenous bankers
Shortage of financial instruments
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SUGGESTIONS:
Imposition of ctrl on the indigenous sector
Standardisation of hundis
Expansion of remittance facility
Expansion clearing houses
Expansion of warehousing facilities in rural areas
Elimination of disparity in interest rates
Removal of seasonal monetary stringency
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RECENT DEVELOPMENT IN
MONEY MARKET
Integration of unorganized sector with the organizedsector
Widening of call Money market
Introduction of innovative instrument
Offering of Market rates of interest
Promotion of bill cultureEntry of Money market mutual funds
Setting up of credit rating agencies
Adoption of suitable monetary policy
Establishment of DFHISetting up of security trading corporation of India ltd.(STCI)