Money Market

Money Market written in golden color, Careerneeti logo,various money symbols like dollar, franc, euro, yuan written in background

What is the Money Market?


The money market is a market for monetary assets with high liquidity whose maturity period of one year or less. The transactions are done online or through telephone as there is no physical presence of this market. It enables to park the excess funds for short-term for earning returns and for meeting the short-term requirement of funds. The major participants in the money market are The Reserve Bank of India, Commercial banks, money market mutual funds, brokers and dealers, Non-Banking Financial Companies, Government-sponsored enterprises, State Government, etc.

Instruments of Money Market:-

  • Treasury Bill: It is a promissory note issued by the Reserve Bank of India on behalf of Government of India. It has a maturity period of three to twelve months. It is also called zero-coupon bonds. It is issued at discount from par value and redeemed at par value. It is issued for the minimum amount of Rs. 25000 and it's multiple. The maturity period of T-Bills in India are presently 91 days, 182 days and 364 days. It can be purchased by any individual, firm, trust, banks, etc. generally commercial and cooperative banks use treasury bills for fulfilling their SLR requirements.
Example: suppose a buyer purchases a treasury bill of Rs. 50,000 (par value) for Rs. 45,000 (discounted value). On the maturity of that treasury bill, he will get Rs. 50,000 thereby earning an interest of Rs. 5000.
  • Commercial Paper: It is an unsecured negotiable promissory note. It is issued at a discounted value and redeemed at par. Corporates, Primary Dealers, Companies including Non Banking Financial Companies(NBFC)  and All India Financial Institutions(AIFI) who gets investment grade rating from Credit Rating Information Service of India Ltd (CRISIL) , Investment Information and Credit Rating Agency of India Ltd (ICRA), Credit Analysis and Research (CARE), FITCH India Pvt.Ltd Or any such other credit rating agency can issue commercial paper. Any scheduled commercial bank can act as an Issuing and Payment Agent for commercial paper. It can be issued for a maturity period of a minimum of 7 days and a maximum of one year. All residents and non-residents of India can invest in commercial paper. It is issued for a minimum of Rs. 500,000 and it's multiple.
  • Call Money/ Notice Money: It is a short-term loan with a maturity period of one day to fourteen days, repayable on demand. If the money is lent for one day then it is called Call Money and if the money is lent for two to fourteen days then it is called Notice Money. It is used by commercial banks to maintain their Cash Reserve Ratio (CRR). The interest paid on call money is called Call Money Interest.
  • Certificate of Deposit: It is a negotiable unsecured term deposited with the bank in dematerialized form or as  Usance promissory note against the funds deposited in the bank. It is issued at a discounted value and redeemed at par. The maturity period of the certificate of deposit for banks is a minimum of 7 days and a maximum of 1 year and for financial institutions is a minimum of 1  year and a maximum of 3 years. It can be issued by any scheduled commercial bank (except regional rural banks and local area bank) and selected All India Financial Institutions permitted by the Reserve Bank of India. It is issued for a minimum of Rs. 100,000 and it's multiple. The interest earned on the certificate of deposit is taxable.
  • Commercial Bill: Commercial bills are a negotiable self-liquidating bill of exchange with low risk. If a seller sells his goods on credit the buyer is liable to make the payment on a specific date agreed by him and seller both. The seller can either wait till that date for his payment or he can draw a bill of exchange. If that bill is accepted by the buyer then it is called trade bill or T- Bill. If the seller wants the fund before its maturity he can go the bank and get it discounted. If the bank accepts the bill, then it is called a commercial bill. Banks can also get the bill rediscounted from Financial Institutions when they are in need of money. The maturity of Commercial Bills is 30, 60 or 90 days.

We hope you find this article helpful.

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2 comments:

  1. It is a complete new piece of information for me.Thanks for sharing this.I request you to write part 2 and describe the buying and selling process in detail especially for individuals.

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    1. Thank you for letting us know that the article was helpful for you. We will make the second part as requested by you and inform you.

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