Instruments used under Money market

 

§  Treasury bills: Treasury bills are instrument of short-term borrowing by the Government of India, issued as promissory notes under discount. The interest received on them is the discount, which is the difference between the price at which they are issued and their redemption value.

§  Money at call short notice: It includes funds borrow to discount houses, money brokers, the stock exchange, bullion brokers, corporate customers, and increasingly to other banks. 'At call ‘money is repayable on demand, whereas 'short notice' money implies that notice of repayment of up to 14 days will be given.

§  Commercial bill: A Commercial Bill arises out of a genuine trade transaction. A bill of exchange is an important commercial bill which is drawn by the seller on the buyer for the amount due to him. The maturity period of bill may vary from three to six months.

§  Commercial Paper: Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

§  Certificate of Deposits: A Certificate of Deposit in India are issued by all scheduled commercial banks excluding (Regional Rural Banks and Local Area Banks) and all India Financial Institutions permitted by RBI. A commercial bank can issue Certificate of Deposit as per their requirements.

§  Interbank participation certificate: Participation certificates are also a new form of credit instrument whereby banks can raise funds from other banks and other central bank approved financial institutions to ease liquidity. In this case banks have the option to share their credit asset(s) with other banks by issuing participation certificates.

§  Repo Instruments: Repo is short for repurchase agreement. Those who deal in government securities use repos as a form of overnight borrowing. A dealer or other holder of government securities (usually T-bills) sells the securities to a lender and agrees to repurchase them at an agreed future date at an agreed price.

§  Gilt-Edged securities: The gilt -edged market refers to the market for Government and semi-government securities, backed by the Reserve Bank of India (RBI). Government securities are tradable debt instruments issued by the government authorities for meeting its financial requirements. The term gilt-edged means 'of the best quality'

§  Bills rediscounting: Rediscount is the act of discounting a short-term negotiable debt instrument for a second time. Banks may rediscount these short-term debt securities to assist the movement of a market that has a high demand for loans.

§  Money market mutual funds: A money market fund is a mutual fund open-ended scheme that invests solely in cash/cash equivalent securities with less than one year maturity, which are also often referred to as money market instruments. These investments are short-term very liquid investments with high credit rating.

§  Call money: Call money is minimum 5% short-term finance repayable on demand, with a maturity period of one to fourteen days or overnight to fortnight. It is used for inter-bank transactions. The money that is borrow for one day in this market is known as "call money" and, if it exceeds one day, is referred to as "notice money."

§  Inter Corporate Deposits:  An Inter-Corporate Deposit (ICD) is an unsecured borrowing by corporate and FIs from other corporate entities registered under the Companies Act 1956. The corporate having surplus funds would lend to another corporate in need of funds.