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(7.Y.B.Com.), , (Sem-, , Economics, , Business, , 150, , 1., , INTRODUCTION, market where, market is the, , borrowing, , and lending, , take, , ot funds, , place,, , for long term, rinancal, short term or, can be for, and, lending, Borrowing, of financial markets:, Thereare two types, a), , Money market, , b) Capital market, , funds., , short term, and lending of, borrowing, in, deals, medium and, Money market, lending of, in borrowing and, , Capital, 2., , funds., , market deals, , MARKET, MEANING OF MONEY, , short, and lending of, market for borrowing, -, , market, , Money, varying from, , one, , is, , a, , a, term funds for, , period, , day to one year., , Money involves short, , term transaction, , financial, types of, , instruments, , such, , as commercial, , in different, acceptance etc., securities, banker's, short term government, are close substitutes, financial instruments, market,, short term maturities. In money, , Money market deals, bills, commercial papers,, , having, , long term, , for money called near money., , short-term nature, instruments are of, market where financial, that it is, market instrument is, a money, of, feature, and highly liquid. The most important, at low cost., and can be turned into money quickly, , Thus money market is, , a, , liquid, , Definition, , collective n a m e, "The money market is the, Crowther,, to, According, deal in the various grades of near money"., various firms and institutions that, , given, , the, , to, , and borrowing of, It refers to the organisation for the lending, of exchange,, of such intruments as commercial bills, short term funds through the usebanker's, acceptance etc.", short term government securities,, commercial banks, nonThe main players in the money market are government, RBI,, both RBI and SEBI., financial institutions etc. Money market is regulated by, , Acording to, , S.N., , Sen,, , ", , banking, , 3., , FUNCTIONS OF, , i) Money, , MONEY MARKET, , market maintain, , monetary equilibrium i.e.,, , it, , keep, , a, , balance between, , demand for and supply of short term funds., , i) It helps RBI in implementing proper monetary policy., ii) It provides short term funds not only to businessman but also to the government, in order to meet its temporary financial difficulties by means of treasury bills., iv) It provides funds to various units in the economy such as agriculture, industry,, trade and commerce. Thus promote economic growth., v) It provides opportunities to commercial bank to invest their funds in a profitable, way., vi) It provides an opportunity to the surplus fund holders to invest their funds in, productive and profitable channels., , vii) It facilitates the working of capital market because, capital market, often make use of funds, viii), , It, , provides, , obtained in the money market., , funds in, , temporary deficit., , ix)It encourages saving, , non-inflationary, , and, , financial assets., , 1., , Crowther, , G., , :, , An, , Outline of Money,, , way to, , investment and, , p. 66, , ensure, , the government, , liquidity, , and, , institutio, to, , meet, , safety, , to
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4., 4., , 1., , INSTITUTIONS, , MARKET, , MONEY, , PLAYERS, , PARTICIPANTS, , CONSTITUENTS, , The major, RBI, , / participants/ players of the, , institutions, , money market, , are as, , follows:, , the controller of the, , market. RBI is, occupies the highest place in the money, market,, market. Through the money, market. It regulates the working of money, is, market, money, function efficiently. At present money, its, making, can, policy, RBI, pertorm, , The RBI, , regulated by both RBI, , and, , 2., , Governemnt, , 3., , Commercial banks, , `EBI., , the, in the money market. In, a most important and active player, is, Government, funds in order to meet its temporary, market the government borrow short-term, money, financial difficulties by means of treasury bills., market., , in the money, important group of operators, banks usually, Commercial, short-term funds., They are the most important supplier of, discount, to the money market. They, excess funds to grant short-term loan, their, employ, trade, finance, Commercial banks are, , the, , most, , bills of, and commerce by mobilising the flow of money., and rediscount commercial papers, such, , 4., , as, , exchange, , and, , industry,, , Non-banking financial intermediaries / Insurance Companies, , Chit funds,, Various non-banking financial intermediaries like LIC, provident fund,, a, market with their short-term funds. They invest, building societies operate in the money, also, Other financial business corporations, part of their funds in the short term securities., operate in the money market with their short term funds., 5., , Discount Houses and Bill Brokers and Dealers, houses specialise in, They are the important institutions in the bill market. Discount, and rediscounting commercial bill and finance drawer of bills. Bill brokers, , discounting, , and dealers also buy and sell commercial bills as well as other bills. They act as, , intermediaries in the money market., 6., , Acceptance Houses, Acceptance house give acceptance, , to, , the commercial and treasury bills. When, , a, , bill is, , aceepted by the acceptance house it becomes readily saleable in the money market. The, acceptance houses extend credit to their customers by accepting commercial bills on their, behalf., Note: These institutions are sometimes borrowers and sometimes they are lender., , 5., , STRUCTURE/ COMPONENTS OF INDIAN MONEY MARKET, The Indiarn Money market is divided into two segments, i), , Organised sector, , ii) Unorganised sector, , This is shown in the following chart:, Structure of Indian Money Market, , A. Organised Sector, 1. Call/Notice Money Market, , B. Unorganised Sector, , 2. Treasury bill market, , 2. Money Lenders, , 3. Commercial bill market, , 3. Unregulated NBFCs, i) Chit Fuds, , 4., 5., 6., 7., 8., , Certificate of Deposits, Commercial Papers, Money Market Mutual Funds, Repo Market, Discount and Finance House of India, , 1. Indigenous Bankers, , ii) Nidhis, ii) Finance Companies, 4. Finance Brokers
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152, A., , Business Economics (T. Y.B.Com.) (Sem-, , s'*'*, , -V), , Organised Sector of Money Market, , n e organised money market has number of sub-markets such as call money market,, u r y bill market, commercial bill market etc. It is homogeneous and integrated sector,, , 5Verywell organised as it is regulated by RBI. Organised sector operate well in cities, like Mumbai,, , Kolkata, Delhi, Ahmedabad, , 1., , etc., , Call money market and Notice, money market, n e call and notice money market are important sub market of the Indian money, , market, Call Money Market, Ihe call, , money market is the market for extremely short period loans say, , one, , day., , In call money market, borrowing and lending of funds is undertaken for a short, period of one day. It is also called 'overnight money' or 'call money because the borrower, has to repay the funds immediately they are called for i.e., money can be called back, within 24 hours. Call money are highly liquid. In this market the participants are mostly, , banks and therefore it is also called Inter-bank money market., Notice money market, In notice, money market borrowing and lending of funds is undertaken for a period, between 2 days and 14 days. In notice, money market the lender issue a notice to the, borrower 2 to 3 days before the funds are to be, paid. On receipt of the notice, the borrower, will have to repay the, funds, n, , call and notice, , (excluding Regional, , money market, the, , main, , Rural, , participants, , are, , commercial banks, , Banks), co-operative banks and primary dealers. They, participate as borrowers and lenders., In call money, , narket, the call money rate (rate of interest) is fixed by the market, supply of short term funds. The call money rate varies to, great extent in different centers, on different days. There are no collateral, or, security demanded against these funds. Call money market are mainly locatedpersonal, in big, industrial and commercial centres like Mumbai, Kolkata,, Chennai,, forces such, , Note, , days., 2., , :, , as, , demand for and, , In term money,, , Delhi, Ahmedabad etc., , borrowing, , and, , lending, , of funds is undertaken for, , more, , than, , 14, , Treasury Bill Market, , The marekt which deals in treasury bills are called, treasury bill market., Treasury Bills are government papers, Treasury bills are short-term government security issued by RBI on behalf of the, Government of India. At present, treasury bills are of three, 91 day, treasury bill, , types, , 182 day treasury bill, 364 day treasury bil1, , These treasury bills are issue, through auctions., RBI, there are no major holders, treasury bills. State government does not issue Except, any treasury bills. Treasury bills are, issued for meeting temporary central, deficits., governemnt, Treasury bills are available for, a minimum amount of R, 25,000 and in multiples of 25,000., Treasury bills are issued at, discount and are redeemed at par., Treasury bills are highly liquid as repayment is guaranted by the government arnd, can be converted into cash at, any time., Investment in treasury bills are, safe since the, payment of interest and, repayment of principal are assured by thehighly, government., In India treasury bills market is, narrow and, undeveloped. Treasury bills are tradabie, in the secondary market., of
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153, , Momcy, AMarkets, , nercial banks, Primary dealers, Mutual funds, Corporates, Financial, tutions, nt or pension funds and Insurance companies can participate in T-bill market., , o m m e r, , provident., , The, , 14-day intermediate treasury bill was introduced on April, , 1997 and was, , tinuedfrom May 12, 2001., j a h e 14-day Action Treasury bill was introduced on June 6, 1997 and auction of these, The, , easury, , bills, , was, , discontinued from May 12, 2001., , t r e : a s, , 3., , Commercial Bills Market, , Commercial bill market deals in bills of exchange. Commercial bill is a short-term, instrument with low risk. A seller draws a bill of exchange, and selt, , liquidating, , ootiable, , nehe buyer to receive payment within a certain period of time., for the, sold o n credit, the seller draws a bill of exchange on the buyer, the, are, goods, If, at a later, to pay the amount mentioned, ount due. The buyer accepts it, promising, seller need not wait until, this period, if the seller requires cash, the, sDecified date. During, the bill with the, date of the bill. He can get immediate payment by discounting, , a m o u, , the, the due, Bank., , The maturity period of, , commercial bills is 90, , days (3 months), , The commercial, , bills, , other, further rediscounted by, and discounted by commercial banks and are, Commercial bill can, are purchased, term finance., institutions like SIDBL, IDBI etc. and get short, bill, financial, In India, commercial, usance period of bill., the, times, of, number, during, be resold a, and to facilitate multiple, To eliminate movement of papers, underdeveloped., "Derivative, is, market, instruments knows as, RBI have introduced an innovative, , rediscounting, , Usance Promissory Notes.", , 4., , Certificate of Deposits, , certificate of, 1989 by RBI. The, was introduced in, (CDs), of, Certificate, deposits, The, Rural Banks) and the, commercial bank (except Regional, issued, by, at the bank, Deposit is a certificate, funds that remain o n deposit, Institutions to depositors of, written, Financial, All India, of CDs receives a, rate of interest. The buyer, a, specified, of maturity are, for a fixed period at, term of deposit and date, interest, rate,, the, declaration or certificate where, , stated., , lakh, , which in, , beyond, single investor is 1, 1 year, maximum, The minimum amount (size) of a, to, of CDs is minimum 7 days, period, at a, issued, maturity, The, are, CDs, multiple of 1 lakh., collateral of CDs is not permitted., transferable by, from the date of issue. Loan against, value. CDs are freely, redeemed at its face, CDs for a, , discount to its face value and, , CDs., , for, n o lock in period, endorsement and there is, in the, to be issued only, are required, , aeveloped., , CDs, , companies,, Sued to individuals, corporation,, Commercial Papers (CPs), , market for CDs is not well, can be, dematerialised form. The CDs, , Secondary, , association etc., trusts, funds,, , money, an unsecured, , market instrument issued, , in the form, , Commercial Paper (CP) is, in 1990. CPs can be issued by corporates,, introduced in India, was, net worth of, It, note., Institutions which have tangible, ora promissory, Financial, India, enable, Primary dealers and the All 4 cr. as per the latest audited balance sheet. This, OTking capital not less than fundin8 requirements for their operations. The maturity, term, m to meet their short to maximum 1 years from the date of issue., O 1 S minimum 7 days, 5 lakh from a single, 5 lakh and in multiple of 7, CP is, of, amount, The minimum, redeemed at its face value., , inve, estor. CP is issued at a, , TnAll eligible, , face value and, discount of its, , participants, , must, , Ormation Services of Indiaa Ltd (CRISIL), the Credit Analysis, of India Ltd (ICRA) or, , Sg Agency, , either from Credit Rating, Information and Credit, , credit rating, obtain the, or the Investment, , be, (CRA) as may, o t h e r credit rating agency, , and Research Ltd. (CARE), time to time,, specified by the RBI from, , or
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Business Economics (T.Y.B.Com.) (Sem., , 154, , for the purpose. All eligible participar, , V), , should have a minimum rating of P2 from CRISI, , RISIL, , or such equivalent rating from any other credit rating agencies., , 6., , Money Market Mutual Funds (MMMFs), , additional short-term, introduced in 1992 by RBI to provide, been, has, made more attractive, dvenue to the individual investors. The scheme of MMMFs, In, to 15 days., 1995, KBI moditied the, to investors by reducing lock in period from 45 days, In 1996, the scheme of, MMMFs., scheme and allowed private sector organisations to set up, MMFS, , an, , were, , MMMFs was made more flexible by bringing it on par with all Mutual Funds by allowing, , MMMFs are, by corporate and other. The funds mobilized by, investments, call money, commercial bills, Certificate of Deposits, Commercial papers., The RBI, , 7., , regulated, , MMMFs but since March 7, 2000, , to be invested, , in, , they n o w come under SEBI., , Repo Market (Repurchase Agreement), , sell and, , buyer), , agree, transaction in which two parties (i.e., the same, A, to, repurchase, to sell and repurchase the same security with a n agreement, security as decided mutually., to repurchase the same at, Under repo, the seller sells the securities with a n agreement, purchases the securities with an, a, pre-determined date and rate. Similarly, the buyer, date and rate., seller at a pre-determined, agreement to resell the s a m e security to the, 1996., reverse Repo in November,, RBI introduced Repo in December, 1992 and later, repo, , or r e v e r s e, , repo is, , a, , from RBI to meet short term needs by selling security, repo, banks borrow money, and date. It inject, at predetermined rate, with a n agreement to repurchase the same, to, , Under, RBI, , liquidity into the system., , Under, , reverse, , from banks, repo, RBI borrows money, , by lending, , securities. It absorbs the liquidity from the system., Both repos and, banks are the major, 8., , reverse, , used to meet short fall in cash, in the repo market., , repo, , participants, , are, , Discount and Finance House, , positions., , Commercial, , of India (DFH), , and to provide, to develop the money market, set up in 25th April 1988, owned by RBI, comemrcial, market instruments. DFHI is jointly, to, money, greater liquidity, its paid up capital. The, institutions which have contributed to, financial, India, All, and, bank and, market for money market intruments, role of DFHI is to develop secondary, DFHI, , was, , important, to, , integrate the various segments, , of the money market., , comemrcial bills,, and notice money, treasury bills,, call, the, in, money, deals, sate, DFHI, securities. DFHI provide, commercial papers and government, certificate of deposits,, investment a v e n u e s to institutions., and risk free short-term, as, DFHI w a s accredited, credit in the market. In February 1996,, excellent, DFHI enjoys, treasury, DFHI operators significantly increased in, 1996,, After, February, Dealer., a Primary, securities., dated, government, bills and, B., , Unorganised, , sector, , of Money Market, , indigenous bankers, Companies., The unorganised, non-banking financial, lenders and unregulated, money, sector. They have diverse polcies and lack, integrated, homogenous, well, and, a, not, are not, sector is, The unorganised, , market consists of, sector of Indian money, , and are not regulated by RBI. Thev, function independently, areas but, uniformity., Unorganised sector operate in urban, not, well-organised., established and, and traders., rarmers, artisans and small producers, in rural a r e a s among, , They, , very, , 1., , are, , popular, , Indigenous bankers, , Indig, Indigenous, eive deposits and give loans to the public. They, firm who receiv, loans, Bankers a r e private, banker, ers make use of their own funds and grant, indigenous, The, to agriculture, trade and industh, a s banks., i n t e r e s t . They provide loan, rate of, charge a high, Bankers, , constitu, , the ancient, , banking, , system in India., , digenous, , o p e r a t e, , They, , ins., , stry. Over
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M o n e yM a r k e t s, , rs,, , the years,, , but, , bank, , 155, , Indigenous, sti, , banker, , theyy still manage, , to, , faced stiff competition from, commercial and co-operauve, survive due to various factors:, , Indigeneous banker provide clear advances to small borrowers., They offer quick service to the borrowers., i) Their operational cost are lower., , iv) They know their borrower well and so the risk of default is low., , There, , are, , nearly 2,500 indigenous bankers, , in, , the country., , alled shrotts and Marwaris; in Chennai, Chettiars;, Sahukars;andiin Bengal, Seths and Banias., are, , 2, , cal, , in, , In, , Mumbai,, , Northern, , these bankers, Manajans, , India, , Money Lenders, , Money lenders lend money in rural as well as urban area. They charge an invariably, high rate of interest. They do business with their own funds. The operatiorns of money, lenders are .prompt and flexible. They indulge in various malpractices, and even, manipulate the account. Their activities are not supervised and regulated., , They provide credit mostly to poor farmers, artisans, manual worker, small traders, etc. Over the years, the role of money lenders has declined due to the growing importance, , banking sector., 3. Unregulated non-banking financial companies, of organised, , It consists of Chit Funds, Nidhis and Finance companies., a) Chit Funds Chit funds are the common non-institutional source of finance. Chit, fund is a kind of savings scheme practiced in India. The member of chit fund, , make regular contribution to funds. The amount thus collected is given to one of, its member on the basis of draws. Every member is assured of his turn. Chit funds, , are voluntary but loose associations for mobilizing rural savings., , There are hundreds of chit funds operating in a big or small scale in many villages, of South India. There are about 8,000 chit funds functioning in the country., b) Nidhis : Nidhis are the common non-institutional source of finance. Nidhis are, mutual loan associations. Nidhis accept deposits from the member and provide, , loan only to its member at reasonable rate of interest. Nidhis operate particularly, in South India and there are 150 Nidhis doing a regular business of finance, many, The RBI has no control, of which are well-organized, but some are mismanaged., activities of the Nidhis., over the, , lending, , c)Finance Companies, , Finance companies raise funds through borrowings, funds. Finance companies accept deposits and, deposits and also used their owned, etc. They, provide loans to traders, retailers, artisans, self-employment persons, , charge high rate of interest., 4., , Finance Brokers, lenders, , Finance brokers are middlemen between, Cmmission for their services. They operate particularly, Od grain market, cloth market and commodity market, , and, in, , OF INDIAN, FEATURES /LIMITATIONS/DEFECTS, , borrowers., , They charge, , urban markets, , specially, , in, , MONEY MARKET, , is not only underdeveloped but also a heterogeneous, money market in India, some of which have been enlisted as under, *uty. As such, it has a number of drawbacks, , The, , entity, , *Dichotomyin structure, has a simultaneous, money market, a) Organised money market, , Ind, , DUnorganised money market, .Y.B.Com. - Business, , conomics, , (Sem.-V), , existence, , of two market
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156, , Business Economicg (T.Y.B.Com.) (Sem,-vy, , Organised money market consists of RBL, commercial bank and other financial, bankers, money, money market consists of indegenous, ne unorganised, olender,s unregulated, finance companies etc., h e organised money market is in dircct control of RBI and unorganised money, market is not under the control of, RBI, the, organised and unorganised money market exist simultaneously. Thus, nus both, dischotonmy has become one of the serious defects of Indian money market., , 2., , Lack of co-ordination, , There is no coordination between the organised and unorganised moneymarket. 1he, , organised money, , market is characterised, , as, , well, , organised, well-established, , and, , regulated by RBI. Unorganised money market is characterised as unorganised, unbalance, , and unregulated by RBI. Apart from this different segments of money market are loosely, , interrelated with each other., , In such situations it is, , extremely difficult, , for RBI to, , ensure a, , uniform implementation of monetary policy in both the market., 3., , Multiple interest rate, In Indian money market, there is no uniform interest rate., , i) There is differences in the interest rates between organised and unorganised, sector. The unorganised sector charges higher rate of interest. For eg. : The rate of, , interest charged by commercial banks is different from the rate of interest charged, by indigenous bankers., , i) There is differences in the interest rates within the organised sector. For eg. : The, rate of interest charged by commercial banks is different from the rate of interest, charged by financial institutions., , i) There is differences in the interest rates within the unorganised sector. For eg., The rate of interest charged by money lender is different from the rate of interest, , charged by indigeneous bankers., Multiplicity in interest rate is basically, , due to lack of coordination between the, different financial institutions and immobility of funds from one sector to another sector, of money market. Multiple interest rate affect the efficiency of the money market., 4., , Underdeveloped Bill Market, The organised bill market is underdeveloped in India. There are many reasons for, , this, i) banks have preferred gilt edged securities (government securities) for investment, over bills of exchange for safety and better yields., , ii) banking habits in India is not much developed, so cash transactions are more, , popular than credit transaction., iii) Indian traders prefer borrowing rather than drawing bills of exchange, As a consequence of all these conditions, no adequate supply of bills can take place., As compared to advanced countries, there is a great paucity of sound and first class, commercial bills of exchange in India., 5., , Limited Instruments, , In Indian money market, the supply of various instruments like Treasury Bills., , Certificate of Deposits, Commercial Paper, Commercial Bills etc. are very limited. It is, necessary to, , develop, , numerous instruments in order to meet, , the varied, , requirements, , ot, , borrowers and lenders., , 6., , Shortage of funds, , In Indian money market there is shortage of funds due to inadequate banking, low savings, lack or banking habits etc. This affects its liquidity and, facilities, low income,, efficiency.
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Money Markets, , 157, , Seasonality, , In Indian, interest rates, , money market, demand for, funds fluctuates with, wi season and this affect the, , During, there is, high demand for money and the interest rates are, Slack, higher., During:, Durin8, er., season, there is low, demand for money and the interest rates are, lower., , Peak season,, , To avoid such seasonal fluctuations in, the, marke, arket during peak Seasons arnd withdraw the money, n, , 8., , funds, , Banking gap, , Banking, , facilities, , are, , either, , market, RBI supply funds, , to, , aiso, aiso, , money, , during slack season., , entirely non-existent, , in, inadequate, India. Commercial banks have spread well in urban areas and, have ignored, ruralvillages, areas. In, or, , the, , of, , lndia, there are villages without any banking facilities. This resulted in shortage of funds, and this hampers economic growth., 9 Inadequate control by the RBI, , The RBI, , has, , adequate control over the policies and functioning of the unorganised, part of the money market, which is quite large in size which plays a significant, role in, no, , rural finance., , 10. Inelasticity and instability, The Indian money market is inelastic as well as unstable; hence, it becomes a great, hindrance to the rapid economic development of the country., 11. Improper care of rural finance, An important weakness of the Indian banking system is that till recently agricultural, finance was divorced from the organised sector of the money market., 12. Blending of lending and trading activities, In the unorganised sector, the financial agencies such as money-lenders and, , indigenous bankers do not resort to money dealings only. They usually carry on retai,, trade, agriculture and other business activities, along with lending operations. Thus they, conduct the mixed business of money - lending and trading, , 13. Small working funds, Though indigenous bankers are large in number in our country (as per the Banking, have a comparatively small, Commission's Report, 1972, it was about 2,500), most of them, regularity or co-ordination with the commercial, deposit business. They also lack any the, bankers, money market. Moreover, indigenous, banks and other organised sectors of, work, team, there is no co-ordination or, themselves lack sufficient organisation. Thus,, , among them., MONEY MARKETT, , RECENT REFORMS IN INDIAN, market has been characterized as disintegrated,, .Since a long-time the Indian money, The Seventh Plan period, however,, developed, ill-liquid, shallow and inrepressed., the whole situation and working of the money, witn, improvement, remarkable, a, recommendations, unessed, accepted certain major, positively, authorities, The, in, the, country., arket, in this context and enthusiastically, and Vaghul Committee, Committee, Chakravarty, Othe, of these two Committees, In fact, the celebrated reports, time., of, course, ed upon in due, innovation in the Indian Monetary system., and, , the air of financial liberalisation, last 34 years, the, equently, during the, number, , W, , At, , deep, , autho:, Orities, , has started becoming, , market, Indiarn money measures, undertaken by the, of innovativeliberalisation., , a, and wide owing to, and the financial, reforms, towards its structural
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1., , of Interest, Deregulation, Rate, rom, , om May 1989,, The, , Business Economics (T. Y.B.Com.), (Sem, , -V), , the, , interest rates, aOnshed., call money, inter-bank term, interest rates is, were made, freely, etc. was, flexible, deposits, in the, determined by the market forces. Thus,, 2., nterest rates, Introduction of New money market., on, , Instruments, the recommendation, of Vaghul Working, ew money market, Groups. The RBI has introduced, instruments, like 182 days, 364, Deposits,, Commercial, many, days Treasury Bills,, papers etc. through, Trom the market for short, which, the Government of India Certificate of, develop money market andperiods., RBI has, introduced new money market raised funds, to make it, 3., more effective., instruments to, Money Market Mutual, Funds, , introduced (MMMF, in 1992 by RBI, to, individual, provide a additional short-term, sector organization to set investors. In 1995, RBI modified, the scheme and, tlexible by, up MMMFs. In, allowed private, it, 1996,, the, on, bringing, scheme, of MMMFs was, and other., made more, The funds par with all Mutual Funds, instruments such as call mobilised by MMMFs arebytoallowing, investments, by corporate, be invested iD, 4., money,, commercial, Discount and Finance, money market, bills, CDs, CPs etc., House of India, The DFHI was, (DFHI), set up in, 25th April 1988 to, STater liquidity to, money market instruments. develop the money market and to, Banks and, Financial, was set, provide, Institutions. DFHI deals inIt the, up jointly by the RBI,, bills, commercial, call, bills, CDs, CPs, Commercial, to, The, , MMMF, , revenue to the, , were, , and, , and, money, notice money,, government securities., market in such, The, role of treasury, important, Indian, instruments., DFHI is, It, has, money market., 5., an, played, important role in, Introduction of, and Reverse, RBI introduced Repos, Repos, Reverse repos are repo in December 1992 and, reverse repo in, instruments used for, RBI lend, November 1996. Repo and, to banks to, short-term, money, increase liquidity in liquidity management. Under, borrow money from, the market., banks to reduce, Reverse Repo to, Reverse Repo,Repo,, in, liquidity, the market. Under, RBI, adjust, in, RBI, liquidity money market., in the, participants, introduced, repo, and, market., Repo, Commercial barnks are the, 6., Regulation of Non Banking Finance, major, to, , develop secondary, stabilizing the, , According the amendment of RBI Company (NBFC), financial institutions,, Act in 1997, no, Certificate of Registration including acceptance of publicNBFC can carry on any business, (COR) from RBI. Further, are, deposits without, required to, of, , comply, , obtaining, companies, procedural norms and, accepting, also, public, to, 7., submit periodic deposits, Establishment of the Clearing, returns to, The CCIL was set, of India, Corporation, Limited (CCIL), up in April 2001, with the State, transactions in government, Bank of, securities and, System (NDS) of RBI., repos reported on India. cCIL clears all, the, 8., Electronic Transactions, the RBI., , In, , order, , to, , with the, , Negotiated Dealing, , have, , transparency, dealing system has been, started. It, , 9., , a, , Legislative Measure, , In 1918, the, Loans Act., Similarly laws, , and, in the, covers all the, deals in money, the, , etficiency, , government of India passed, , transactions the electronic, , money market., , a, , law, , were enactea to compelto check usuary, under the, of their, Usurious, money-lenders, to, Dusiness., their, maintain, carrying on enaing, Money, proper, lending business. lenders were also, to, , reoisters and accounts, maintain licences for, , reguired
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mey Markets, , between Indigenous Bankers and, , 159, , Link betwee, , 10, , Commercial, , Banks, establish relations, banks. Those inc, between, indigenous bankers and comme, indigenous bankers who are, tSheps, , were taken, , to, , State BanK nala are entitled to, missory notes signed by two of their, 11. Unifornm Chit Fund Legislation, , the, , Nidhis and, , rcial, , the ap, approved list of joint-stock banks and, receive cash credit from these banks, against demand, , or, , Chit, , funds, which, , on, , bankers., , are, , recognised by law, are required to be, regise, Central, Government has proposed to introduce, rial legislation caled the Nidhis and Chit Fund, a, Act, with a view to controlling and, regulating the, their activities. The, banking Commission has also suggested one uniform chit, legislationfor the entire, , dor, und, er, , the Indian, , Companies, , Act. The, , spec, , country., , fund, , 12. Liquidity Adjustment Facility (LAF), , Liquidity Adjustmernt Facility, , was, , introduced by RBI, , RBI to develop short term interest rate and to, Concluding Remarks, , adjust, , in June 2000. LAF has, liquidity in the money market., , helped, , In conclusion, we must say that,, despite of all these efforts, no effective measures, have been taken so tar to integrate the unorganized part of the Indian money market, with, , organised part. The gap existing between these two vital parts is a, , its, , serious, , impediment, to the effective implementation of the monetary policies and credit control measures, to the, , RBI, , MODELQUESTIONS, Answer in brief:, 1 What is money market? Describe the main features of Indian Money Market., , ofIndian, , market, , 3., , Discuss the structure/ components, money, Explain the organised sector of Indian Money Market., , 4., , Discuss the components of unorganised sector of Indian Money Market., , 2., , 5. Explain the various limitation/ defects, 6., , drawbacks of theIndian Money Market., , Discuss the money market reform in India since 1991., , IL Write short notes on:, 1., , Features of Indian money market, , 2., , Limitation / Defects of Indian money market, , 3., , Organised money market, , 4., , Unorganised money market, , .Reform ofIndian money market, Participants ofMoney market, Functions of Money market, OBJECTTVE QUESTIONS, A., , Fill in the blanks:, 1. Money market is a marke for., is, , an, , unsecured money, , financial instruments, market instrument issued in the form of, , notes., , RBI introduced repo in ., , Treasury bills are., , 5., , papers., , -deals in bills of exchange., , a, , promissory
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160, , Business Economics (T. Y.B.Com.) (Scm, , 6., , V, , occupies highest place in the money market., , 7., , At, , present money market is, regulated by, is, an active player in the money market., Ans. (1)- short term, (2)- Commercial Paper, (3)- December 1992, (4)- Government., 6-Commercial bill market, (6)- RBI, (7)- RBI and SEBI, (8)- Government|, , 8., , B., , Choose the correct, , answer:, which of the following is not a part of the unorganised sector of the money market?, , 1, , a), b), c), d), 2., , Loan Companies, Call money market, Chit funds, Money lenders, , Certificate of Deposits (CDs), , are, , issued by., , a) Scheduled Commercial Banks, b) Regional Rural Banks, , c)Local Area Bank, d) BSE, 3., , is not a part of unorganised sector of Indian money market., , a) Money lender, b) Indigeneous Bankers, , c)Loan companies, d) Co-operative Banks, , 4, , Which of the following is a part of the organised sector of Indian money market?, a) Unregulated NBFI, b) Money lenders, c)TreasuryBill Market, d) Indigeneous Bankers, 5., , Money market is a, , market for, , a) Short term funds, b) Medium term funds, c), 6., , Long term funds, , d) All of the above, In call money market, loans, , are, , given for a period of, , ., , a) 1 to 15 days, b) 15 to 50 days, , c)upto181 days, d) upto 364 days, are, , ., , a), , the main, , participants in the call money market., , Co-operative banks, , b) Primary dealers, , 8., , c), , Commercial banks, , d), , All of the above, , The commercial bills are purchased and discounted by, a), , Indigenous bankers, , b), , Money lender
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Money Alarkets, , 161, , c)EXIMBank, d) All of the above, does not, , Presently, India., , form the part of, treasury bills, , issued by government, , of, , a) 14 day treasury bills, b) 91 day treasury bills, , c)184 days treasury bills, 10, , d) 364 days treasury bills, Which of the following is not the main, a), , RBI, , players of Indian money market?, , b) Comnmercial banks, c), , Government, , d) Over the, , counter, , exchange of India (OCTCEI), , 11. Commercial banks can issue certificates of deposits with a maturity periods of not, less than, a) 5 days, , b) 7 days, c), , 2 years, , d) 5 years, 12. Which of the following is not a part of the organized sector of the Indian money, market?, , a) Mutual fund, , b) Foreign bank, , c)Chitfund, d) Commercial bank, 13. Which of the following is not a component of unorganized money market?, , a) Loan companies, b) Money lenders, c)Callmoney market, , d) Chit Funds, 14. Certificate of deposits (CDs) are issued by ., a) Commercial Banks, , b) Foreign Banks, , c)Regional Rural Banks, d) Local Banks, , T h e organized sector of Indian money market does not include_, , a) Treasury bills, , b) Chit funds, , )Mutual funds, , d) DFHI, does not deal with, T h e Clearing Corporation of India, a) Government securities, , b) Mutual funds
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Business, , 162, , Economics, , (T., , om.) (Sem,-V), Y.B.Com.), , c) Certificate of Deposits, d) Indigenous Bankers, 17., , Is the apex, , organization of the, , Indian money, , marke, , a) World Bank, b) UTI, c)RBI, d) GIC, 18., , are issued by commercial bank., , a) Certiticate of deposits, b) Comnmercial bills, , c)Commercialpapers, d) Treasury bills, , 19., , At present Indian money market is, a) RBI, , regulated by, , b) SEBI, c)RBI and SEBI, d) None of these, 20. DFHI is owned, , by, , ,, , a) RBI, b) Commercial bank, , c)FinancialInstitutions, d) All of these, , Ans. (1b), (2 a), (3, , d), (4 c), 5 - a), (6 - a), (7 - d), (8 - c) (9 - a, , (10-d), (11 - b), (12- c), (13 - c), (14 - a), (15 - b), (16- d), (17- c), (18 - a), (19-c), , (20-d)], C., 1., , State whether the following statements are True or False:, Money market is a market for long-term funds., , 2., , The Indian money market is characterized by its, dichotomy., Indigenous bankers are part of organized sector of Indian money market, The Indian money market lacks integration., , 3., , 4, 5., 6., 7., , 8., 9., , Transaction of funds in the call money market are for a, period of three months., The commercial paper is a long-term instrument of, raising funds., Repo represents a sale aim repurchase agreement., The organized sector is regulated by RBI., Money Market Mutual Funds are the, market., , main, , components, , 10., , Indian money market is inetticient in several ways., , 11., , Indian money market is highly efficient., , 12. There exist, , Call, , rate is, , unorganised, , multiple interest rates in Indian Money Market., , 13 Inter-bank money market is also known as commercial, bill, 14., , of, , an, , market., , appropriate indicator of liquidity position in the, , 15. Stock exchange are part of money market., , money, , market., , money