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Money market:
Money market deals in short term debts.
Relates to all dealings in money an monetary assets.
It is for financial assets that are close substitutes for
money.
Its characteristics:
It is a centre where borrowers and lenders of money and near
money assets
come together.
Has no geographical restriction.
Traders in instruments which provides liquidity to the financial
system.
It is a wholesale market.
olumes of trade are large.
!ettlements are done quickly.
Transactions are conducted first and documentation done
later.
"lectronic instruments are the medium of transaction.
#hat is a well developed money market:
It uses broad range of financial instruments.
$anali%es savings into productive investments like working
capital.
&romotes financial mobility in the form of inter sectoral
flows of funds.
'acilitates the implementation of monetary policy by way of open
market
operations.
Integrates structures between markets.
(evelops high degree of speciali%ation w.r.t. dealing in
instruments.
)niformity in prices for the instruments traded.
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*dvantages of mature market:
+aps between the submarkets can be bridged.
'acilitates the profitable developments of surplus funds of
bankinginstitutions.
$ontrol by the central bank is easier.
Helps bankers to maintain required reserves and cash.
&rovides liquidity to all players.
&rovides awareness of investment to all players.
(ependence on one system will be reduced.
+reater fle,ibility for investing and borrowing.
$hoice of selection and borrowing will be there.
Money Market
-rganised )norganised
+ovt/semi
govt
&rivate $all Money Inter
corporate
Money
lendersTbills $ommercial bills $all money Inter corporate
deposits
Indigeneous
bankers
+ovt.
securities
$ommercial papers. 0idhis
Repos $ertificate of
deposits.
$hits
)TI units &articipation
certificates
&!) deposits
1onds
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Management in money market:
$onversion of cash into short term money market instruments to
utili%e
surplus cash for earning 2ve returns and converting back into
cash to meetliquidity needs.
The operation is a trade off between liquidity and income.
Main things to see are:
o Retruns aimed.
o Risks to be taken.
o Time duration.
o *sset liability match.
Requires e,perience and e,pertise.
+ood knowledge to select suitable instruments so as to provide
ma,imum
return with adequate return and minimal risk.
(efault valuation
Response
time
&rocedure
3ield Transactioncost
Risk
minimisation
4iquidity Return
*sset 4iability Management
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