Money market in india. Notes on the Structure of Indian Money Market 2019-02-08

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Indian Money Market: Features, Defects and Reforms

money market in india

They are highly liquid and no risk of default of payment is there. Money market refers to institutional arrangements which deal with short-term funds. The cooperative societies at the local level are loosely linked with it. Such instruments are usually issued by banks when they have a tight liquidity position because of slow growth of bank deposits but the demand for credit is high. Third, the money market operator through the collateral loan market for a short period. The securities are valued at the current market price plus the interest allowed.

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Interbank Call Money Market

money market in india

In this market, loans are made available to businessmen and the government by the commercial banks, discount houses and brokers. Interest rates have been freed. Call money rates are usually influential in the margin borrowing rates of brokerage accounts since call money serves as a source of funds to cover margin lending. This brings in more liquidity during the period of busy season between June to February. Liquidity is high for the securities issued by central government and limited for securities issued by the state government and local government. In other countries the discounting of commercial bills is considered to be a subsidiary function of the commercial banks. While Treasury Bills or T-Bills are issued by the Central Government; Commercial Bills are issued by financial institutions.

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money market in india

London Money Market, New York Money Market etc. Brokerages may use call money markets to cover margin accounts. The maturity periods of this instrument are from 15 days to 1 year. The term is generally between 3 months to 5 years. Treasury bills are short-term financial instruments that are issued by the Central Bank of the country. Finally, the term is occasionally met in the literature of Monetary Theory where it may refer simply to the market in loanable funds in the most general and undifferentiated sense. They cater to the financial needs of different sectors.

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money market in india

However, a new and proper bill market was introduced in 1970. The wide fluctuations create problems in the money market. In rural areas, they do so through cooperative credit societies. Types of Money Market instruments in India - Money market instruments take care of the borrowers' short-term needs and render the required liquidity to the lenders. More Information about Commercial Papers is.

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Money market in India

money market in india

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. Certificates of deposits are in the forms of promissory notes, and stamp duty applies to these instruments. Commercial banks, both Indian and foreign, co-operative banks, Discount and Finance House of India Ltd. The money market is a wholesale market. Existence of Un-organised Money Market: The most important defect of the Indian money market is the existence of unorganised segment. On maturity, he receives Rs. The bill market is the short-period loan market.

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Indian Money Market: 4 Constituents of Indian Money Market

money market in india

. On maturity, one gets the interest on the buy value as well. This it does by allocating saving into investment channels. The assets in money market funds are invested in safe and stable instruments of investments issued by the government banks, corporations, etc. Indian money market is following the unique practice of converting treasury bills into dated securities of 2 years or 5 years, normally carrying interest rate of 12 per cent.

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money market in india

But the Indian money market is an insular one with little contract with foreign markets. The treasury bills are the most important instrument used in the bill market. The treasury bills sold to the public and banks are called regular treasury bills. The unorgnaised sector consists of indigenous bankers and money lenders. When a commercial bank accepts a trade bill it becomes a commercial bill.

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Growth of Indian Money market

money market in india

The major participants in the money market are the commercial banks, finan­cial institutions, corporations and individuals. This classifica­tion is on the basis of term of credit, i. In India the minimum size of the issue is Rs. If the brokers are asked to pay off loans immediately, then they are forced to get funds from large corporations and even from the central bank at high interest rate. Other entities use short term loans from the interbank call money market to manage various liquidity needs. It is es­sential to establish a link between the two markets. It provides short term investment opportunity to banks.

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Role of Money Market in India

money market in india

However, their importance has declined because the commercial banks have undertaken the acceptance business. This guarantee states that the buyer will pay the seller at a future date. Since banks work as both lenders and borrowers in these markets, they are also known as Inter-Bank market. Although money market does not refer to any specific place, it may be located in or associated with a particular place or geographical locality where short-term funds from an entire region or country or countries are attracted. In underdeveloped money markets, only bill brokers operate.

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