Money market instruments are highly liquid and invest in short term debt of under a year. The instruments traded under the money market are the closest substitute for cash in terms of liquidity and tradability. A money market generally comprises of commercial banks, acceptance houses and non-banking financial companies (NBFCs).
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The money market is a larger domain that comprises several assets which themselves are sub-domains to the larger segment. The sub-domains are:
However, trading and dealing under the money market are not done in cash which means highly liquid assets are traded. These assets are:
See Also: Money Market Instruments
The money market highly supports and affects a country’s economy by serving several objectives. Some of the important objectives of money market instruments are:
See Also: Functions Of Money Market
Money market instruments have several benefits and reflect multiple characteristics that are advantageous to the economy as well as the customers. Some of these are:
RBI governs and regulates the money market instruments under sections 45K, 45L, and 45W of the RBI Act, 1934. The Reserve Bank of India issues guidelines to regulate the money market instruments by addressing the eligible market participants accounting for Certificate of Deposits, Treasury bills, call or notice money market, commercial paper and non-convertible debentures with a maturity of up to 1 year.
All co-operative banks, scheduled banks, and primary dealers are allowed to take part in the call/notice money market enacting as both lenders and borrowers.
Certificate of Deposits are issued against larger deposits made with financial institutions and banks. The primary difference lies in the amount of money deposited in the Certificate of Deposit as larger sums of money are accepted and it’s freely negotiable.
Organizations that have huge amounts of surplus money which needs to be preserved in a safe avenue; opt for Certificates of Deposits. These offer higher earnings as compared to T-Bills and term deposits and are relatively liquid.
See Also: Money Market Instruments
Note: Scheduled banks for all purposes in money markets exclude RRBs.
CPs are unsecured promissory notes issued for a short term by high rated companies in order to raise capital to leverage daily operations.
CPs can be issued by companies with a tangible net worth of at least Rs 4 crores.
Has a sanctioned working capital limit issued by FIs or banks.
NCD can be issued only if:
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