L-3.Money Markets (Short-Term Instruments)

L-3.Money Markets (Short-Term Instruments) - CA(IBFS-3)...

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CA(IBFS-3) L-3: Short-term Instruments This deals with: 1. Introduction to Indian Money Markets 2. Call Money Market 3. Treasury Bill Market 4. Commercial Bill Market 5. Certificates of Deposit (CD) Market 6. Commercial Paper (CP) Market 7. Money Market Mutual Funds (MMF) Market 8. REPO Market 9. Characteristics of Indian Money Markets 1. Indian Money Market : Money Market refers to a mechanism whereby the borrowers manage to obtain short-term (1 day to 1 year) loanable funds and the lenders succeed in getting credit worthy borrowers for their money, thus creating credit. The Organized Indian Money Market comprises of: (a) Sub-Markets : - Call Money Market - Treasury Bill Market - Trade Bill (Commercial Bill) Market - Certificate of Deposits Market (CDs) - Commercial Paper (CP) Market - Money Market Mutual Funds (MMMF) Market - REPO Market 1
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- MMMF units - Participating Certificates (PCs) 2. Call Money Market : In this, mostly Banks’ day-to-day surplus funds are traded. The money is lent for 1 day to 15 days. Money lent for 1 day: Call Money Money lent for 2-15 days: Notice Money These Call Moneys are highly liquid as they are repayable on demand. Purpose : Commercial Bill Market borrows call money for short periods to discount commercial bills. Banks borrow for meeting temporary gaps in mismatch of funds, CRR and other sudden demands for funds. Location : (a) Participating Institutions : - Banks, FIs, DFHI, NABARD - RBI , Govt. PSUs - Listed Corporates - Mutual Funds - Individual Investors (b) Instruments: - Short-term Advances/ Call Money - Treasury Bills - Repos (Debt Instruments) and Reverse Repos - Commercial and Trade Bills - CDs and CPs 2
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Mumbai, Kolkata, Chennai, Delhi and Ahmedabad Participants : The participants include: All banks – Commercial, Foreign, Cooperative; FIs (IDBI, IFCI, ICICI, NABARD, LIC, UTI, GIC & SIDBI); Mutual Funds; and DFHI. FIs and MFs are only lenders. Call Rates : They fluctuate, climb during busy seasons compared to slack seasons. Illiquidity in the market causes volatility of interest rates. 3.Treasury Bill Market : It deals with treasury bills. In India, treasury bills are short- term liabilities of Central Government. But they are continued on permanent basis by converting into long-term bonds. TB market is very much underdeveloped. Only RBI holds most of the outstanding TBs. From April 1977, Ad-Hoc and On-tap TBs have been replaced by Ways and Means advances for financing Central Government’s temporary deficits. Types of Bills, which are in use : 14-Day Intermediate and Auction Treasury Bills 91-Day TBS 182-Day TBs 364-Day TBs 3
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NBFCs, LIC, UTI, Corporate/Non-Corporate Firms do not hold treasury bills. On the contrast, in USA and UK, TBs are the most important money market instruments. Hence, open market operations of Central Bank in those countries are quite effective. 4. Commercial Bill Market
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L-3.Money Markets (Short-Term Instruments) - CA(IBFS-3)...

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