Money Market

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