Types of money market instrument in Indian

 

Types of Money Market Instruments in India

1. Treasury Bills

Treasury Bills are one of the most popular money market instruments. They have varying short-term maturities. The Government of India issues it at a discount for 14 days to 364 days.

These instruments are issued at a discount and repaid at par at the time of maturity. Also, a company, firm, or person can purchase TB’s. And are issued in lots of Rs. 25,000 for 14 days & 91 days and Rs. 1,00,000 for 364 days.

2. Commercial Bills

Commercial bills, also a money market instrument, works more like the bill of exchange. Businesses issue them to meet their short-term money requirements.

These instruments provide much better liquidity. As the same can be transferred from one person to another in case of immediate cash requirements.

3. Certificate of Deposit

Certificate of Deposit (CD’s) is a negotiable term deposit accepted by commercial banks. It is usually issued through a promissory note.

CD’s can be issued to individuals, corporations, trusts, etc. Also, the CD’s can be issued by scheduled commercial banks at a discount. And the duration of these varies between 3 months to 1 year. The same, when issued by a financial institution, is issued for a minimum of 1 year and a maximum of 3 years.

4. Commercial Paper

Corporates issue CP’s to meet their short-term working capital requirements. Hence serves as an alternative to borrowing from a bank. Also, the period of commercial paper ranges from 15 days to 1 year.

The Reserve Bank of India lays down the policies related to the issue of CP’s. As a result, a company requires RBI‘s prior approval to issue a CP in the market. Also, CP has to be issued at a discount to face value. And the market decides the discount rate.

Denomination and the size of CP:

Minimum size – Rs. 25 lakhs

Maximum size – 100% of the issuer’s working capital

5. Call Money

It is a segment of the market where scheduled commercial banks lend or borrow on short notice (say a period of 14 days). In order to manage day-to-day cash flows.

The interest rates in the market are market-driven and hence highly sensitive to demand and supply. Also, the interest rates have been known to fluctuate by a large % at certain times.

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