Financial And Money Market In India

Short-term investments are exchanged on stock markets. Liquidity in trading bills and other financial products is quite high. Money market instruments also make it easier for the participant to get short-term finance since they exchange bills. Individual and institutional investors make up the bulk of the players in this market.

Both the NSE and BSE stock exchanges have a money market where many items are transacted. In addition to Treasury bills and certificates of deposit, additional financial instruments such as commercial paper, repurchase agreements, and other contracts are also included. Investors go to the money market for refuge because of its high level of liquidity.

All money market instruments are under the Reserve Bank’s jurisdiction. The money market has less risk. This is the case since most instruments are developed in less than a year. As a consequence, it’s unlikely that the loan will default. In the money market, you’ll find financial assets close to the money.

The Financial Market’s Purpose

The financial sector’s most important goals are as follows: 

• Individual investors and the government may be able to get low-cost, short-term loans. Lenders will profit from improved liquidity due to the short maturity of money market assets.
• Lenders may be able to benefit from their leftover funds. This arrangement benefits both the lender and the borrower.
• The Reserve Bank of India regulates the money market (RBI). As a consequence, it helps to balance the economy’s liquidity supply.
• Because the majority of enterprises do not have the necessary working capital. Due to the money market, many firms can meet their working capital requirements.
• The government sector depends substantially on this kind of funding in both internal and international trade. As a result, it’s a great place for banks to keep their surplus cash.
• In India, a broad range of money market instruments are accessible. 

Different kinds of money market instruments in India.

 Treasury Bills 

Treasury Bills are a popular alternative in the money market. They develop at different rates throughout a person’s life. The government of India offers it at a subsidised rate for 14 to 364 days. These securities are offered at a discount and repaid at full value when they reach maturity. Businesses, companies, and individuals may acquire tBs. They may be yours for the taking in lots of Rs. 25,000 for 14 days, Rs. Ninety-one days, and Rs. 1,000,000 for 364 days.

• Commercial Bills

This includes bills of exchange and other money market instruments such as commercial bills. These are issued by businesses to fulfil short-term liquidity needs. These goods’ liquidity has been considerably improved. Money may be transferred from one individual to another in a financial emergency.

• Certificate of deposit.

Commercial banks accept CDs as a negotiable term deposit. A promissory note is the most popular money market instrument for issuing one. Donating CDs to individuals, businesses, trusts, and other organisations may benefit all of them. CDs from scheduled commercial institutions may also be offered at a reduced interest rate. The normal length of time is three months to a year. If given by a financial institution, the same is valid for a year to three years. 

• Printed Documents Commercial paper

Printed Documents Commercial paper is a kind of short-term operating financing used by enterprises. As a result, it might be a viable alternative to regular bank loans. Commercial paper may last anywhere from 15 to 12 months. The Reserve Bank of India issues participation certificates. Because of this, the RBI compels firms to get authorization before releasing a CP into the market. CP must also be sold at a lower price than its real value. The market determines the discount rate. In addition to that, inter-bank term money is also a part of RBI. The size of a CP and the currency in which it is denominated- A minimum of Rs. 25 crores is required and the issuance size limit is 100% of the issuer’s operating capital. This market sector includes commercial banks that lend or borrow money on a short-term basis (say 14 days). To keep track of the money flow daily. Interest rates are determined by supply and demand in the financial markets. Interest rates have been known to change by a hundred percent at times.

 Conclusion

Short-term, high-quality debt securities with a one-year or less maturity are traded on the money market. Short-term securities may be sold by governments, banks, and other large organisations to address short-term cash flow needs. Money markets may also be used by individual investors to invest small amounts of money in a low-risk investment environment.

Treasury bills, commercial papers, and certificates of deposit are examples of negotiable money market instruments. Many parties, including businesses, utilise it to generate financing by selling commercial papers on the open market. On the other hand, the money market offers a wider range of products at a lower rate of return to investors. Apart from that, the call/notice-money market should not be taken lightly.