MONEY MARKET AND CAPITAL MARKET

Money Market

Money market is the market for lending and borrowing of short term funds.

It deals with the financial assets having a maturity period less than 1 year.

It deals with only those assets which can be converted into cash readily and with minimum transaction cost.

Money Market Instruments

Call money Market

Treasury Bills

Certificates of Deposit

Commercial Papers

Repo Instruments

Call money Market

Market for extremely short period loans- 1 day to 14 days.

Loans are repayable at demand at the option of either the lender or the borrower.

Commercial PapersIssuers: All Pvt sector companies,

Public sector units and non banking companies.

Investors: Individuals, Banks, Corporates, NRI’s

Features:◦ Instrument comprising promissory note

with fixed maturity.◦ Issued at a discount to face value basis

but can also be issued in interest bearing form.

◦ No pledging of asset.◦ Can be issued directly by the company or

through banks

Treasury BillsIssued to the public and other

financial institutions for meeting the short term financial requirements of the central government.

On the basis of periodicity, TB’s can be classified into-◦ 91 Days TB’s (issued at a fixed discount of

4%)

◦ 182 Days TB’s◦ 364 Days TB’s (do not carry any fixed rate.

The discount rate is quoted in the auction by the participants and accepted by the authorities)

Certificates of Deposit

Issuers: Commercial Banks, Financial Institutions.

Subscribers: Individuals, Corporations, Trusts, associations and NRI’s

Features:◦Freely negotiable◦Issued at discount to face value.◦Repayable at fixed date.

Capital MarketPrimary Market

Secondary

Market

Primary MarketAlso known as new issue marketThe services of Primary market are

entirely taken up by banks, brokers and underwriters

It deals with the new securities which are issued for the first time for the public subscription.

It is also a Platform for expansion, diversification and modernization of existing units.

FunctionsOrigination

Underwriter

Distribution