Money Market in India

Money market is the market where short term securities are borrowed and lent. The lending money market institutions are –

  • Banks and Development financial institution
  • PSUs [Public Sector Undertakings]
  • Government of India
  • Private Sector Organizations
  • The Government / Quasi government owned non-corporate entities.

Instruments of Money Market are:

  1. Call or Notice Money: It is the amount borrowed on demand for a very short period of time. If the amount is borrowed for 1 day, it is called as call money whereas when the amount is borrowed for greater than 1 day and upto 14 days then it is called as Notice money. This is completely interbank market.
  2. Treasury Bills: These are low risk category instruments for short term. There are four types of treasury bills. 14-day T-bill: maturity is in 14 days, 91 days treasury bills: maturity is in 91 days, 182 days treasury bills: maturity is in 182 days, 364 days treasury bills: maturity is in 364 days.
  3. Certificate of Deposits (CD): Certificate of Deposit is issued by banks and financial institutions. A CD is issued at discount and discount rate is negotiated between the issuer and investor.
  4. Commercial Papers: These are negotiable short-term unsecured promissory notes with fixed maturities issued generally on discount by well rated organizations. These are generally issued in the multiples of five crores.
  5. Commercial Bills: Bills of exchange are negotiable instruments drawn by seller of the goods on the buyer of the good for the value of the goods delivered. These bills are called trade bills. When these bills are accepted by commercial banks then it is called as commercial bills.
  6. Dated Government Securities: These securities are issued by government and date of maturity is also specified on these securities. These are issued through auctions conducted by RBI.These securities are issued as fixed interest securities, floating rate securities and zero coupon instruments.