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    12th

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    • Money Market

    Money Market

    • Posted by admin
    • Categories 12th, Commerce
    • Date December 31, 2019
    • Comments 0 comment
    money-market-and-its-instruments

    This is for only  short-term funds that means maturity of bonds is less than one year

    Nature of Money Market

    • Duration: No physical location. Deals in short-term funds
    • Major participants: RBI, Non-banking financial papers, call money and certificates of deposit
    • Instruments: Treasury bills, commercial papers, call money and certificates of deposit
    • Investment outlay. Transactions involve huge amounts of money
    • Liquidity & safety: easy liquidity and absolutely safe
    • Expected return: very low

    Types of money market instruments

    Treasury bill

    • Also known as zero coupon bonds
    • Issued by RBI on behalf of government of India
    • Promissory notes
    • Issues at discount and redeemed at part

    Commercial paper

    • Maturity period 15 days to 1 year
    • Negotiable instrument
    • Issued at discount and redeemed at par like treasury bill

    Call money

    • Maturity period from1 to 15 days
    • The rate at which it is borrowed is call rate
    • Call rate fluctuates not only in a matter of days but also hours
    • Bank borrow from each other through call money

    Commercial bill

    • Bill of exchange used for meeting short-term fund requirements of companies
    • Drawn by the seller on the buyer. it can be discounted from a bank by the seller in case the seller needs funds before the lapse of maturity period
    • Firms finance their credit sales through trade bills
    • The moment these trade bills are accepted by a third party like commercial banks, they become commercial bills

    Certificate of Deposit

    • Issued by commercial banks and development banks
    • When banks come in a situation of tight liquidity ( Shortage of cash) they issue certificates of deposit to meet the high demand for credit

    Tag:money market, nature of money market, types of money market instruments

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