Ayussh Sanghi is teaching live on Unacademy Plus
Money Market By Ayussh Sanghi Part 3
Money Market Instruments
Call Money (Overnight Market) . It is a financial instrument used for very short-term borrowing and lending .It involves inter-bank lending and borrowing. Time period- Funds are transacted within 1 day
Short Notice Market Inter-bank borrowing and lending Time period - Between 2 to 14 days Term Money Market . Borrowing and lending for a period of more than 14 days Interest rates in these short-term fund markets are determined by the forces of demand and supply.
Treasury Bills (T-Bills) Is a short-term money market instrument issued by Government of India and auctioned by RBI on GOI's behalf. Also called Zero coupon bonds as these are non-interest bearing in nature . These are low-risk instruments with guaranteed return These are low-risk instruments with guaranteed return. . No tax is deducted at source in case of T-bills
. T-bills also issued under Market Stabilisation Scheme (MSS) Treasury bills are repaid at par on the expiry of their tenor at the office of the Reserve Bank of India, Mumbai Treasury bills are issued at a discount and redeemed at the face value at maturity'. For example: "A 91 day Treasuryb of Rs.100 (face value) if issued at Rs. 98.20,i.e, at a discount of Rs. 1.80, can be redeemed at the face value of Rs.100. The difference between the face value and the issue price is the return to the investors."
Types of treasury bills 1. Ad hoc Treasury bills . Discontinued from 1997-1998. Replaced by ways and means advance. Regular Treasury Bills Issued by the government to meet budgetary expenditure' There are treasury bills with different maturity periods. For 2. instance: 14 days T-bills, 182 days T-bills, 364 days T-bills
Commercial Papers .CPs are unsecured debt instruments (CPs are not generally backed by collateral It can be issued in dematerialised form or as promissory notes (on investor's insistence . .CPs were issued in India in 1990 to enable short-term funding requirements Issuer of CPs should have high quality debt ratings. These issuers are rated by credit rating agencies like CRISILICRA,CARE, FITCH Ratings
Issued by A-India financial institutions ii. Primary dealers (PDs) iii. Corporates Corporates should have a net worth of minimum 4 crore. All corporates cannot issue CPs. Should be able to mexthe igia set by RB Should be able to meet the eligibility criteria set by RBI
CPs are issued in multiples of 5 lakhs and its multiples thereof. Maturity period of Commercial papers is: Minimum duration-7 davs Maximum duration- 1 year Following entities can invest in CPs a. Individuals including NRIs. b. Banking compani c. Corporate bodies registered in India d. FIls (as per the guidelines of SEBI)