INTRODUCTION

Money market is the centre for dealing mainly in short term money assets It is a market for the lending and borrowing of short term funds As the name implies, it does not actually deals with near substitutes for money or near money like trade bills, promissory notes and government papers drawn for a short period not exceeding one year. It meets the short-term requirements of borrowers and provides liquidity or cash to lenders.

Objectives of Money Market

To provide a parking place to employ short-term surplus funds. To provide room for overcoming short-term deficits. To enable the Central Bank to influence and regulate liquidity in the economy through its intervention in this market. To provide a reasonable access to users of Shortterm funds to meet their requirements quickly, adequately and at reasonable costs

ADVANTAGES
Safety Liquidity Ideal Short-Term Investment Ideal Fund Management Statutory Liquidity Requirement Source of Short-Term Funds Non-Inflationary Monetary Tool

DRAWBACKS
Poor Yield Absence Of Competitive Bids Absence of Active Trading

Components of a Money Market

Central Bank
It is naturally to be the leader of all banks. It is the bank, which is entrusted with the task of controlling the issue of money and funds to the market and regulates credit facilities provided by various other institutions.

Commercial Banks
They play a vital role in the money market. They make advances, discount bills and lend against the promissory notes and the like. They also take help of the market in solving their liquidity problems.

Non Banking Financial Companies

A Non Banking Financial Company(NBFC) is a company registered under the Companies Act, 1956 of India, engaged in the business of loans and advances, acquisition of shares, stock, insurance business, or chit business: but does not include any institution whose principal business is that includes agriculture or industrial activity; purchase or construction of immovable property.

Discount Houses
Discount houses are special institutions for rediscounting the bills of exchange. They usually deal in three kinds of bills. (a) The domestic bills (b) The foreign bills and (c) The government treasury bills

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The discount houses borrow huge funds for short periods from the commercial banks and RBI and Sinvest them in discounting bills. But before discounting a trade bill of exchange, the Discount House insists that it should be accepted by an Acceptance House.

Acceptance Houses
Acceptance Houses are institutions which specialize in accepting bills of exchange. Generally they are merchant bankers. They act as second signatories on the bills of exchange. That is they guarantee the bills of a trader whose financial standing is not known, for making the bill negotiable.

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They maintain correspondents in important towns of various places within and outside the country to collect information about the creditworthiness and financial position of the customers, who seek the assistance of the Acceptance Houses. For their service, they charge a small amount of commission but ensure great security for the bills discounted by the Discount Houses.

INSTRUMENTS

Certificate of Deposits
A Certificate of Deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty.

Commercial Papers
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting shortterm liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.

Repurchase Agreements
A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.

Bankers Acceptance
An instrument issued by a firm that is guaranteed by a commercial bank. Banker's acceptances are issued by firms as part of a commercial transaction. These instruments are similar to T-Bills and are frequently used in money market funds. Banker's acceptances are traded at a discount from face value on the secondary market, which can be an advantage because the banker's acceptance does not need to be held until maturity.

Treasury Bills
A particular kind of finance note put out by the government of the country. Treasury bills are highly liquid because there cannot be a better guarantee of repayment than the one given by the government. They are claims against the government. That means when you buy a Treasury, we are actually loaning money to the government and the government in turn is paying you interest on the borrowed money.

Qualities of T-Bills
High liquidity. Absence of risk of default. Readily available Assured yield Low transaction cost

Types of T-Bills
Ordinary T-bills:Ordinary T-bills are issued to the public and the RBI for enabling the government to meet the needs of supplementary short term finance. Adhoc T-bills:The practice of issuing adhoc TBs has been discounted through the singing of two agreement between the government and the RBI.

T-Bills Rate
Treasury bills rate is the rate of interest at which treasury bills are sold by RBI. The effective return on treasury bills is the discount at which they are sold and their redemption value.

Present Status
At present the government of India issues four types of treasury bills trough auctions namely 14 day ,91 day , 182 day and 364 day . There are no treasury bills issued by state Government.

Auction
T-bills are auctioned every alternative week of Wednesday. The RBI issues quarterly calendar of T-bills auction which is available at the banks website. All T-bills are now sold through an auction process according to a fixed auction calendar, announced by RBI.

91 day T-bills Auction

Published on Saturday Nov. 11,2010 at 13:50 1 updated at Saturday Nov.11 2010 at 14:27 The RBI has announced the auction of 91 days Government of India Treasury Bills for notified amount of Rs 2000cr. The auction will be conducted on Nov 15 2010. The sale will be subject to the terms and conditions specified in

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he General Notification No. F.Z.(12)-W and M/97 dated 31st March 1998 issued by Government of India and as amended from time Tender should be submitted in the prescribed form on Wednesday November 15,2010 by 12:30 P..M. Results will be announced on the same evening. Payments by success full bidders will be on Friday, November 17,2010. Any person in India including individuals, firms, companies, corporate bodies. Trusts and Institutes can purchase T-bills.

FORM
The T-bills are issued in the form of Promising note in Physical Form or by credit Subsidary General Ledger (SGL) account or Gill account in dematerialised form.

REPAYMENTS
The T-Bills are repaid as par on the expiry of their tenor at the office of RBI, Mumbai.

YIELD CALCULATION
The yield of a T-Bill is calculated as per the following formulla: Y=(100-P)*365*100/P*D Y:-Discounted Yield P:-Price D:-Days of maturity

Salient Features of the Auction Technique

The auction of T-Bills is done only at RBI Mumbai. Bids are submitted in terms of price per Rs100. e.g a bid for 91-day . T-Bill auction could be for Rs97.50. Auction Committee of RBI decides the cut-off price and results are announced on the same day.

Call Money Market

The Call Money Market refers to the market for extremely short period loans; say one day to fourteen days. These loans are repayable on demand at the option of either the lender or the borrower.

INTRODUCTION
A short-term money market, which allows for large financial institutions, such as banks, mutual funds and corporations to borrow and lend money at interbank rates. The loans in the call money market are very short, usually lasting no longer than a week and are often used to help banks meet reserve requirements.

ADVANTAGES
High Liquidity High Profitability Maintenance Of SLR Safe And Cheap Assistance To Central Bank Operations

High Liquidity
Money lent in a call market can be called back at any time when needed. So, it is highly liquid. It enables commercial banks to meet large sudden payments and remittances by making a call on the market

High Profitability
Banks can earn high profiles by lending their surplus funds to the call market when call rates are high volatile. It offers a profitable parking place for employing the surplus funds of banks temporarily

Maintenance Of SLR
Call market enables commercial bank to minimum their statutory reserve requirements. Generally banks borrow on a large scale every reporting Friday to meet their SLR requirements. In absence of call market, banks have to maintain idle cash to meet5 their reserve requirements. It will tell upon their profitability

Safe And Cheap

Though call loans are not secured, they are safe since the participants have a strong financial standing. It is cheap in the sense brokers have been prohibited form operating in the call market. Hence, banks need not pay brokers on call money transitions

Assistance To Central Bank Operations

Call money market is the most sensitive part of any financial system. Changes in demand and supply of funds are quickly reflected in call money rates and give an indication to the central bank to adopt an appropriate monetary policy. Moreover, the existence of an efficient call market helps the central bank to carry out its open market operations effectively and successfully.

Drawbacks
Uneven Development Lack Of Integration Volatility In Call Money Rates

Uneven Development
The call market in India is confined to only big industrial and commercial centers like Mumbai, Kolkata, Chennai, Delhi, Bangalore and Ahmadabad. Generally call markets are associated with stock exchanges. Hence the market is not evenly development.

Lack Of Integration
The call markets in different centers are not fully integrated. Besides, a large number of local call markets exist without an\y integration.

Volatility In Call Money Rates

Another drawback is the volatile nature of the call money rates. Call rates very to greater extant indifferent centers indifferent seasons on different days within a fortnight. The rates very between 12% and 85%. One can not believe 85% being charged on call loans.

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