50 50 money market pptx

7/29/2019 50 50 Money Market Pptx

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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)

50 50 money market pptx

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