Money Market (Project)
Money Market (Project)
Money Market (Project)
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR QUALIFYING BBI SEMESTER-V EXAMINATION
Project Report On
MONEY MARKET
By Sukeshini S. Patil
ACKNOWLEDGEMENT
It gives me an enormous pleasure in submitting the project of Money Market I would like to take this opportunity to sincerely thank Prof. Prajakta Pawade. My project guide, for extending their support, guidance and co-operation which helped me in completing this project
successfully. I would also like to thank my sister for her kindly support & encouragement throughout my project to complete the project on time. I am also thankful to our college as well as our college librarian for availing me the required books on INDIAN BANKING who have made my efforts into success by living me all the possible help & support in my project. I am also thankful to my friends for helping me in my project.
Content
TOPIC
Synopsis Chapter-1 1.1 Financial Market 1.2 Organized Money Market Chapter-2 2.1 Introduction of Money Market 2.2 Definitions of Money Market 2.3 Features of Money Market 2.4 Objective of Money Market 2.5 Importance of Money Market Chapter-3 3.1 Money Market & Capital Market Chapter-4 4.1The Players Money Market Chapter-5 5.1 Components of Money Market Chapter-6 6.1 Sub-Markets of Money Market Chapter-7 7.1 Characteristics of A Developed Money Market Chapter-8 8.1 Importance of Developed Money Market Chapter-9 9.1 Indian Money Market Chapter-10 10.1 Money Market Instrument in India Present Day Developments 10.2 Money Market Position
Page No.
10.3 Objectives Chapter-11 11.1 Instrument Trade in Indian Money Market 11.2 Greek Money Market Instrument 11.3 Greek Government Debt Chapter-12 12.1 Discount and Financial House of India(DFHI) Chaper-13 13.1 The Foreign Exchange Market 13.2 Participants of FOREX Market 13.3 Foreign Exchange Rates Chapter-14 14.1 Measure Taken to develop the Money Market Chapter-15 15.1 Comparison of London, New York and Indian Money Market 15.2 London Money Market 15.3 New York Money Market 15.4 Indian Money Market ANNEXVRE Case Study Bibliography Quaternary
SYNOPSIS
Money Market refers to the activity rather than place. This activity covers lending and borrowing of short term funds. The market deals in call and notice deposit, short-term bills, promissory notes and government paper, etc., which are drawn for shortperiods. These days money market instrument are many, such as Treasury Bills, Commercial Paper, Certificate of deposits, Commercial Bills, etc. Objective of Money Market Feature of Money Market Money Market & Capital Market The Player of Money Market Components of Money Market Sub-markets of Money Market Money Market Instrument in India DFHI Develop the Money Market Comparison
Chapter-1
Call Money Short Notice Term Money Commercial Paper Certificates of Deposits Money Market Mutual Funds Commercial Bills Treasury Bills Inter Corporate Funds
Primary Market Consists of: Public Corporate, existing Stock holder other entities Handles Instruments Like: Stock/Shares/Debentures/Bonds/ Warrants Collective Instruments Like: Venture Capital Funds, Global Depository Receipts, Foreign Currency Convertibles Bonds
Call money market Bill Market Treasury Bills Commercial Bills Bank Loans(short-term) Organized money market comprises RBI, Banks (commercial and co-operative)
Chapter-2
Money market refers to the activity rather than a place. This activity covers lending and borrowing of short term funds. The market deals in call and notice deposit, short-term bills, promissory notes and government paper, etc., which are drawn for short-periods. These days money market instrument are many, such as Treasury Bills, Commercial Paper, Certificate of deposits, Commercial Bills, etc., however, these securities and instruments should have maturity period of less than one year.
(I) According to RBI report, Money market is the centre for dealings mainly of short-term character, in money assets; it meets short-term requirements of borrowers and provide liquidity or cash to the lenders.
(II) It is the place where short-term surplus investible fund at the disposal of financial and other institutions and individuals are bid by borrowers, again comprising institutions and individual and also the government itself.
(III) We can define money market as, the market in which the highly liquid short-term bills are dealt with mainly by government, business concerns and private individuals.
FINANCIAL MARKETS
MONEY MARKET
CAPITAL MARKET
Transactions have to be conducted without the help of brokers. It is not a single homogeneous market, it comprises of several submarket like call money market, acceptance & bill market. The components of Money Market are the commercial banks, acceptance house & NBFC (Non-banking financial companies.)
In money market transaction cannot take place formal like stock exchange. Only through oral communication, relevant document and written communication transaction can be done.
To provide a reasonable access to users of short-term fund to meet their requirement quickly, adequately at reasonable cost.
Development of Trade & Industry. Development of Capital Market. Smooth functioning of Commercial Banks. Effective Central Bank Control.
Chapter-3
1. Term of Finance
Provides short-term finance (Usually up to one year). Provides long-term Finance.
2. Nature of Requirements
securities of Government.
4. Assistance
Government.
5. Main Institutions
Foreign banks, development Financial Institutions like IDBI, ICICI, IFC, etc. Central Bank, Commercial Banks, Co-operative Banks, etc. Investment Banks like IDBI, IFCs, SFCs, ICICI, Insurance Companices, Financial Instituitions, etc.
These two markets work together and are possibly interdependent. Some institutions like commercial banks operate in both markets. Basically, money market and capital market are the segments of one market called market of credit.
Chapter-4
Commercial Banks, Co-operative Banks and Primary Dealers are allowed to borrow and lend. Specified All-India Financial institutions, Mutual funds. and certain specified entities are allowed to access to Call/Notice money market only as leaders
Individual, firms. Companies, corporate bodies, trusts and institutions can purchase the treasury bills, CPs and CDs.
Chapter-5
The discount house borrows huge funds from the commercial banks and RBI Sinvest them in discounting bills. But before discounting a trade bill of exchange, the Discount House insists that it should be accepted by an Acceptance House.
5. Bill Brokers: The Bills Broker intimately know their customers and
act as intermediaries between the sellers and buyers of bill for a small commission. Sometimes, these bill brokers discount bills on their own account.
Chapter-6
Acceptance Mark
Bill Market
(1)Call Money Market: The Market for extremely short period loans. Money at call and short notice
The rate is determined by the demand and supply of funds. Money is lent mainly to the bill brokers and stock exchange dealers.
MERITS The money can be taken when needed. Earn interest by quick lending of idle cash. Promote stock exchange transactions.
The main operators in this market are the Acceptance houses and the commercial banks.
MERITS
(3)Bill Market: Market for short-term bills. Buying and selling of short dated papers, bills, etc. It includes commercial bill market and Treasury bill market.
MERITS Helps the government by marketing of treasury bills. Helps the others sectors as well.
The loans and advances are covered by collaborates like government securities, gold silver, of stock corporations, merchandises, etc.
Chapter-7
Existence of sub-markets
International attraction
(i)Existence of Central Bank: In the developed money market, the role of Central Bank is notable. It controls the entire money market operations by making the availability of funds depending upon the economic cycles. It can be done through its open market operations.
(ii)Highly organized Banking System: As they are the main dealers in short-term funds, the commercial banks are considered as nervous system of the money market. Therefore, a well developed money market will have a highly organized and developed commercial banking system.
(iii) Existence of sub-markets: In a developed money market the various sub-markets there should be a reasonable and healthy competition. That is, in developed money market will have a developed sub-market such as bill market, call money market, acceptance market, discount market, etc. Ti can be said that the larger the number of submarkets, the broader and more developed will be the structure of the money market.
(iv)Prevalence of healthy competition: In each sub-market there should be a reasonable and healthy competition. That is, in a developed money market, there are a large number of borrowers, leaders and dealers. They only each market will be activates of one sub-market should crate effects in the other markets also.
(v)Integration of sub-markets: In the developed money market there will be a perfect integration among various sub-markets of the market. Their functioning are interdependent. The funds flow from one sub-market to another and the activities of one sub-market should crate effects in the other markets also.
(vi)Availability of proper credit instruments: The developed money market should have the necessary credit instruments such as treasury bills, promissory notes, bills of exchange, etc. They should be freely available.
(vii)Flexibility and adequacy of funds: In a developed money market, there must be ample resources. The flow of funds into the money market should also be flexible enough, i.e., the flow of funds can be increased or decreased depending upon the demand for funds.
(viii)International attraction: The developed money markets attract funds from foreign countries also. The dealers, borrowers and lenders of foreign countries are eagerly coming forward to participate in the activities of developed money market.
(ix)Uniformity of interest rates: Prevalence of uniformity in interest rates in different parts of the country is the characteristic feature of a developed money market.
(x)Stability of prices: Stability of prices all over the country will be an outcome of the effective functioning of a developed money market.
(xi)Highly developed industrial system: The money market will function smoothly and can achieve the basic purpose of its existence only when there is a highly developed industrial system. Developed money market demands for such a system.
Chapter-8
(B) It provides profitable outlet for the short-term funds of the commercial banks.
(C)It helps the Government to raise necessary short-term funds by sales of treasury bills
(ii) Helps to carryout its open market operations on a large scale (iii) Provides commercial bills to the Central Bank for rediscount
(iv) Helps in the regulation of the movement of funds in the money market
Chapter-9
Before knowing the features of Indian money market let us have a look on its organizational structure.
Organised Sector
Unorganised Sector
Co-operative Sector
1. Organized sector (1.1) Reserve Bank of India (1.2) Commercial Banks (I) Public Sector (a) SBI & its 7 subsidiaries (b) Co-operative Banks
(c) 20 Nationalised Banks (II) Private Sector (a) Indian Banks (b) Foreign Banks
(1.4) Development Banks: IDBI, IFCI, ICICI, NABARD, SFCs, EXIM. BANK, LIC, GIC, UTI, etc.
(2.2) Moneylenders
(2.3) Chits
(2.4) Nidhis
3. Co-operative Sector
Chapter-10
Investment in Money Market is done through money market instruments. Money Market Instruments meet short term requirements of the borrowers and provides liquidity to the lenders.
As already mentioned Money Market refers to all the Institutions which deal in short-term funds, usually up to one year. There is no single meeting place of Money Market Like stock market or commodity market. The institutions which have short-term surplus funds and those who require short-term funds (borrowers) get in touch with one another either directly or through agents/brokers over telephone/computer network and exchange funds by writing down cheques/ pay orders, etc.
10.3 Objectives
(i)Money ensures those institutions which have surplus funds earn certain returns on the surplus.
(iii)Similarly, the money market ensures funds for the needy at reasonable interest.
Chapter-11
The type of financial instruments traded in Indian money market can be shown in the following chart.
Call Money
Commercial Papers
'Repo' Instruments
Commercial Bills
Certificate of Deposit
InterCorporate Deposit
Treasury Bills
Let us now discuss the various money market instruments in India. In India the Money Market is regulated by RBI. Hence, the instruments traded and the players in the market require to be approved by RBI. The instruments currently traded are as follows: (I)Call Money
(I)Call Money
Call Money is a method of borrowing and lending for one day. This is also called overnight money. The rate of interest used to be decided by RBI earlier. After 1989, the interest rate was deregulated and now the liquidity position (availability of funds) maintained the rate of interest. The lender issues a cheque or pay order on its account maintained with RBI in favour of borrower Accordingly, RBI transfer funds by debit to lenders account borrowers account. On repayment, the process is reversed through RBI. In times of tight money, situation or liquidity crunch, the call money interest rate goes up even beyond 50 percent per annum. Only permitted organization like scheduled commercial banks, large co-operative banks, DHFI, Primary dealers, NABARD are permitted to borrow funds through call money market. However, funds can be provided or lent even by other entities like LIC, GIC, large corporate, big mutual funds, etc.
rediscounted bill. Banks can certify the large number of bills intended to be rediscounted through a single document known as Derivative Usance Promissory Note (DUPN). In other words, DUPN is a money market instrument backed by genuine commercial bills. Banks can get the value of DUPN discounted and obtain funds. This way banks can borrow funds without transferring the bills. It is necessary that the original bills in the portfolio of banks should not be drawn for period exceeding 120 days. The maturity of DUPN, however, should not exceed 90 days.
investments should be in multiple of Rs.5lakh.These are issued at discount to face value. In India this instrument was first introduced in 1989.
Greek short-term debt instruments account for EUR 3.8bn, which represents 0.05% of the total amount of outstanding short-term debt in the Euro zone (EUR 798.2bn-July 2003).
Since becoming the latest country to join the Euro, the Greek bond market developed significantly. The demand for Greek Government paper has increased drastically, thus the primary market for government paper was marked by an increase in securities issues. Factors such as the substantial increase in the public sectors gross borrowing requirement and the upgrading of the countrys credit rating contributed to these developments. The nominal value of all types of government paper issued in 2002 rose to 32.1 billion, from 24.2 billion in 2001 and 26.8 billion in 2000.
Chapter-12
Chapter-13
Interbank Market is the wholesale market in which major banks trade with each other.
Direct Quote Indirect Quote A cross rate is an exchange rate between the currencies of two countries that are not quoted against each other, but are quoted against one common currency. The spot exchange rate is the rate at which a currency cab be bought or sold for immediate delivery which is within two business days after the day of the trade. Bid-ask spread is the difference between the bids and ask rates of a currency. The Forward Exchange Rate is the rate that is currently paid for the delivery of a currency at some future date.
For a direct quote, the annualized forward discount or premium can be calculated as follows: Spot rate-Forward * 360 Forward premium = Spot rate *Days
Chapter-14
2. In 1989, the money market interest rates were deregulated. From that time onwards RBI has been trying to impart flexibility to the interest rate structure by incorporating modifications as and when necessary. In 2003-04 RBI advised the banks to determine the Benchmark Prime Lending Rate (BPLR). It has to be based on the cost of funds, operating expenses and minimum margin to cover the regulatory requirement. The new system has been introduced to reduce the rigidity in the downward movement in the lending rates of commercial banks.
3. A number of reforms were introduced in the call money market. Many non-banking financial institutions (NBFCs) and mutual funds were allowed to operate in the call money market as lenders. Many restrictions, which were imposed earlier, were removed to active to activate the market.
4. Many new instruments were introduced in the last one-decade. Four important instruments introduced were 182 days treasury bills, 364 days treasury bills, certificate of deposits and commercial paper. The Discount and Finance House of India (DHFI) systematically promotes the treasury bills market. The commercial paper and certificate of deposits enable the business firms and the commercial banks to mobilize substantial funds. It also provides an opportunity to the investor to get good returns.
5. In 1992, the Government introduced Repos. It refers to repurchase agreement. A Repo is an instrument of repurchase agreements between RBI and Commercial banks. They are used by banks to manage their short-term liquidity. The fluctuate widely. It is a very popular instrument. It can be effected between banks and financial institutions and between banks themselves.
6. The Central Bank uses the Market Stabilization Scheme and the Liquidity Adjustment Facility to regulate liquidity in the money market. Capital flows are regulated by the Central Bank through open market operations and repo operations. Under the Liquidity Adjustment Facility cash reserve ratio is also employed by the Central Bank to ensure monetary stability.
7. In 1991, money market mutual funds were introduced. They provide an opportunity for the investors to park their funds for a short period.
These mutual funds mainly offer short-term instruments. IDBI, UTI and private sector mutual funds are operating in the money market.
8. In 1988, the government constituted the discount and Financial house of India (DHFI). It main function is to bring the operations of commercial banks, foreign banks, cooperative banks and financial institutions into the fold of the money market. This was expected to help in bringing about equilibratium between demand and supply of funds and improving the working of money market.
9. Electronic Dealing Systems are being introduced by the RBI to ensure transparency and efficiency in money market operations.
10. The Clearing Corporation of India Limited (CCIL) was registered under the Companies Act in 2001. State Bank of India is the chief promoter. The CCIL clears all transactions in government securities, repos and rupee/dollar foreign exchange spot and forward deals.
Chapter-15
A lesser level comparison of London, New York and Indian Money Market may be understood. The money market comparisons is a various part Period of Development, Nature of Growth, Control over the Money Market, Weapons used to Control Money Market, Specialized Institutions, Competition among Institutions, System of Banking, Number of Central Banks, Operation of Bill Market, Variation of Interest Rate, Attraction of Foreign Funds etc,.
1. Period of Development
London money market has enjoyed the supreme position till the beginning of First World War period.
2. Nature of Growth
Highly organized and well developed.
5. Specialized Institutions
The acceptance house, Discount Houses, etc. are playing main role in the money market.
7. System of Banking
In U.K. branch banking prevails. The banking system is mainly under the control of Big five banks. All banks have their branches in London.
2. Nature of Growth
Organized and well developed but next to London Money Market.
3. Control over the Money Market The Federal Reserve Banks control the Money Markets through statutory powers.
5. Specialized Instutions
It does not have such institution. Commercial bank performs these functions.
7. System of banking
In U.S.A. until banking is prevailing, since there are numerous banks of small size, they do not have their banks in Washington.
In U.S.A. there are 12 Federal Reserve Banks for different regions. With Federal Reserve System at the apex level.
2. Nature of Growth
Fast catching up worth matured market since 1992.
5. Specialized Institutions
DFHI, Primary Dealers Development Financial Institutions, Money Market Mutual Funds, etc.
7. System of Banking
In India branch banking is popular. Even then many private sector banks are small in size.
ANNEXURE
CASE STUDY
Greater competition will invigorate equity release 21 February 2013.
The Solution: Certainly, the credit crunch hit providers hard and it
would be fair to say that it has taken some time fir equity release to recover; however, the figures recently released by Equity Release Council go some way to underlining the positive drivers that are now shaping the market. In 2012, the total value of the equity released by 17 % up from Euro 788.6m to Euro 925.7m-it will not take a genius to work out that anything close to this level of improvement in 2013 will take the figures through the Euro 1 bn barrier. Were we to see 17% growth these years then I suspect may more potential providers will be taking a long hard look at the sector and potentially not just expressing an interest in equity release but looking for more active involvement?
The sector would certainly benefit from new entrants plus greater competition and choice for customers.
Bibliography
(A) 1. BOOKS NAME: Indian Banking 2. PUBLICATION: S. Chand 3. AUTHOR NAME: S. Natrarajan R. Parameswaran
(B) 1. BOOKS NAME: Indian Economy 2. PUBLICATION: Vipul Prakashan 3. AUTHOR NAME: Saraswathy Swaminathan
(C) 1. BOOKS NAME: Security Analysis and Portfolio Management 2. PUBLICATION: Vipul Prakashan 3. AUTHOR NAME: P.K. Bandgar.
Websites
www.google.com www.wickipedia.com
Quaternary
1. Money market deals with
(a) (b) (c) (d) Short Term Funds Long Term Fund Medium Term Fund Bills
3. The lender of the Indian money market is: (a) Government of India (b) Ministry of Financial (c) Indian Bank Association (d) Reserve Bank of Indian Answer: Reserve Bank of Indian
4. The other name for American money market is: (a) Washington Money Market (b) California Money Market (c) Federal Reserve System (d) New York Money Market Answer: 5. The lender of the London Money Market is (a) Barclays Bank (b) Bank of Credit and Commerce International (c) House of Commons (d) Bank of England Answer: Bank of England
Ltd.