However, their importance has declined because the commercial banks have undertaken the acceptance business. The interbank call money market offers liquidity for a broader range of participants. As and when implemented this will widen the scope of money market. The maturity date, fixed rate of interest and a fixed value - are the three components of a certificate of deposit. This classification is on the basis of term of credit, i. Treasury bills are short-term financial instruments that are issued by the Central Bank of the country.
Such financial intermediaries are savings banks, investment houses, insurance companies, provident funds, and other financial corporations. Second, the money market also operates through the bill market. On the other hand, capital market is a market in which lenders or investors provide long-term funds in exchange for financial assets offered by borrowers and holders. They comprise the following types of institutions: 1. The secondary market transactions aiming at effective management of short term liquidity are on the increase. It is the average of the call money rates offered by a set of specific banks on a given day. Features of the Indian Money Market : In money market short term surplus funds with banks, financial institutions and others are bid by borrowers, i.
Instruments of the Money Market: The money market operates through a number of instruments. These high return activities are invariably financed by the black money. Isolation from Foreign Money Market: The Indian money market is isolated from foreign markets. The markets catering the need of short term funds are called Money Markets while the markets that cater to the need of long term funds are called Capital Markets. Treasury Bills: Treasury bills, also known as Zero Coupon Bonds are the instrument of short term borrowing with maturity period of less than one year. Meaning and Features: The money market is a market for short-term instruments that are close substitutes for money. The money market is a wholesale market.
The term is generally between 3 months to 5 years. Scope of India Money Market The India money market is a monetary system that involves the lending and borrowing of short-term funds. The fixed maturity for commercial papers is 1 to 270 days. For example, suppose an investor purchases a 108 days Treasury bill for Rs. Helps in Financial Mobility: By facilitating the transfer for funds from one sector to another, the money market helps in financial mobility.
There are number of factors responsible for it in addition to the above discussed characteristics. There are three types of treasury bills in India—91 days, 182 days and 364 days. However, a new and proper bill market was introduced in 1970. If the former find their reserves short of cash requirements they can call in some of their loans from the money market. The only link that exists between the organised and unorganised sectors is through commercial banks. The creditor can discount the bill of exchange either with a broker or a bank.
Financial Institutions and Markets Fifth ed. On maturity, one gets the interest on the buy value as well. But controls the money market through variations in the bank rate and open market operations. The creditor can get it discounted from his bank till the date of recovery. A well-developed money market contributes to an effective implementation of monetary policy. Reverse Repo transactions are affected with scheduled commercial banks and primary dealers. Money Market Mutual Funds: In 1992 setting up of Money Market Mutual Funds was announced to bring it within in the reach of individuals.
It was in 1989 that the certificate of deposit was first brought into the Indian money market. Reintroduction of 182 days treasury bills: The 182 days bills, which were discontinued in 1992, have been reintroduced from 1998-99. The short term fund market in India is located only in big commercial centres such as Mumbai, Delhi, Chennai and Kolkata. In recent years, the commercial banks have also stared the acceptance business. Thus, the entire market is dominated by small number of large players.
Other types of call money markets also exist. The subscribers for a certificate of deposits are individuals, association companies, trusts, etc. They act as agents between exporters and importers and between lender and borrower traders. The rest of the procedure is the same as for the internal bill of exchange. But the Indian money market is still centred on the call money market although efforts have been made to develop secondary market in post 1991 period. Financing Industry: Money market contributes to the growth of industries in two ways: a Money market helps the industries in securing short-term loans to meet their working capital requirements through the system of finance bills, commercial papers, etc.