Presentation of Fss

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Medicaps Institute Of Technology &

ManagementPresentation

Topic Instruments of money market.

Submitted to Submitted by Manali kalaNikita patodi

Neha jhanjhariSuyog dekhneVishal chawla



Meaning of money market & itsinstruments

Money market is a market where short term funds orloans or financial assets are borrowed and lent .it is aplace where lending and borrowing is done throughinstruments having an original maturity of up to oneyear.Large no. of instruments that are trade in moneymarket are issued by gov.of India, state gov. & otherstatutory bodies.



Types of money market

instrumentsTreasury bills.Certificates of deposits.Commercial papers.Gilt edged securities.Repo and reverse repo transaction.



Meaning of treasury bills

Treasury bills or T-bills, which are money marketinstruments, are short term debt instruments issuedby the Government of India . Treasury bills are zerocoupon securities and pay no interest. They areissued at a discount and redeemed at the face valueat maturity.



Features of t-bills

These are highly liquid and safe investment givingattractive yield.Maturity 91 days ,182 days, & 364 days.

T-bill can be purchased by any one includingindividuals except state govt.T-bills are issued in the form of promissory note inphysical form or dematerialized form.The Reserve Bank of India conducts auctions usuallyevery issue T-bills on Wednesday.Payments for the T-bills purchased are made on thefollowing F riday



T- bills

T-bills are issued at a discount to face value and areredeemable at par on maturity.T-bills are available for a minimum amount of rs.25000 and in multiples of it.The RBI issues a quarterly calendar of t-bill auctions.It also announces the exact dates of auction.

The Reserve Bank of India announces the issuedetails of T-bills through a press release every week.



A dvantages-Highly liquid.Transparency.Simplified settlement.

They are exempted from state and local taxes.

Disadvantages-

The down side to t-bill is that low return oninvestment.



Meaning of certificate of deposit

Certificate of Deposit (CD) is a negotiablemoney market instrument and issued in onlydematerialized form . Banks can issue CDs formaturities from 7 days to one a year whereaseligible F Is can issue for maturities 1 year to 3years. it is Introduced in 1989.



Features of CDs

Person can buy a CDs by depositing the minimumrequisite amount.Higher deposited amount gives higher interest amount.

It is a written certificate where the applicable interestrate ,term of deposit and date of maturity are stated.They are negotiable and transferable instruments.Issued limit, minimum 1 lack ,beyond in multiple of Rs.1

lack .at the time of maturity, buyer are entitled to receivethe principle amount and the interest earned.



Prons & cons of CDs

prons-Its an effective and safe tool of investment ,and it hassimplest form of interest calculation.

Cons

If the investor wants a longer maturity and higherrate of interest then this instrument can not used.



Meaning of commercial paper

A n unsecured, short-term debt instrument issued bya corporation, typically for the financing of accountsreceivable, inventories and meeting short-term

liabilities.Maturities on commercial paper rarely range anylonger than 270 days.It was introduce in India in 1990 with a view to

enabling highly rated corporate borrowers todiversify their sources of short-term borrowings andto provide an additional instrument to investors.



Features of commercial paper

Its a short term money market instrument.It is issued at a discount to face value basis but it canalso be issued in interest bearing form.It is directly issued by a company to investors orthrough banks/merchant bankers.The issuer promise to pay the buyer some fixed

amount on some future period but pledges noassets.The liquidity and established earning power of buyer,guarantee that promise.



Commercial paper

A corporate would be eligible to issue CP who stangible net worth of the company, as per the latestaudited balance sheet, is not less than Rs. 4 crore.

A ll eligible participants shall obtain the credit ratingfor issuance of Commercial Paper from either theCredit Rating Information Services of India Ltd.(CRISIL) or by any other institution ,permitted by RBI.

CP can be issued for maturities between a minimumof 15 days and a maximum up to one year from thedate of issue.



Commercial paper

CP can be issued in denominations of Rs.5 lakh ormultiples thereof. A mount invested by single investorshould not be less than Rs.5 lakh (face value).



A dvantages of commercial paper

Simple and easy.F lexibility.Diversity.High return.Securitization of loans Etc.



Gilt edged securities

Gilts are bonds issued by certain nationalgovernment. it also call Govt.securities.The Government securities comprise dated securities

issued by the Government of India and stategovernments as also, Reserve Bank of India managesand services these securities through its public debtoffices located in various places as an agent of theGovernments.its a totally secured financial instrument ensuringsafety of both capital and income.



G-securities

It is exempted from income tax and wealth tax.The g-secu. Market is an over the counter marketand each sale and purchase has to be negotiated

separately.Government paper with tenor beyond one year isknown as dated security. A t present, there areCentral Government dated securities with a tenor up

to 30 years in the market.Subscriptions can be for a minimum amount of Rs.10,000 and in multiples of Rs.10,000.



G-securities

A part from purchasing government securities in theprimary issuance, i.e. through auctions/sales, alltypes of government paper can also be purchased

from the secondary market.Participants in govt.securities are banking sector,individuals, insurance companies ,central and stategovt. trust, local authorities etc.Clearing corporation of India Ltd. Worked as aclearing & settlement in g- secs.



Types of g-securities or bonds

Zero coupon bonds.F loating rate bonds.Tap stock.Partly paid stock.Capital indexed bonds.Strips, etc.



Repo and reverse repo transactions

Repurchase A greements: Repurchase transactionsare transactions or short term loans in which twoparties agree to sell and repurchase the samesecurity.They are usually used for overnight borrowing.Repo/Reverse Repo transactions can be done onlybetween the parties approved by RBI.Under repurchase agreement the seller sellsspecified securities with an agreement to repurchasethe same at a mutually decided future date andprice.



Repo & reverse repo transactions

Similarly, the buyer purchases the securities with anagreement to resell the same to the seller on anagreed date at a predetermined price.

Such a transaction is called a Repo when viewedfrom the perspective of the seller of the securitiesand Reverse Repo when viewed from the perspectiveof the buyer of the securities.

whether a given agreement is termed as a Repo orReverse Repo depends on which party initiated thetransaction.



Example of repo & reverse repotransaction

I am the RBI manager.when I give you security (paper) & take money from you&promise you that I will buy the same paper back from you

after few months this is repo.When I buy the security from you and give you money &youpromise me that you will buy back that paper from me afterfew months this is reverse repo.



Players in repo /reverse repo rate

They can lend but can they can lend andnot borrow borrow

F inancial institutions like RBI.

icici etc. Scheduled banks .Companies listed inIndian stock market.



RBI & repo

A t present RBI carries out overnight (one day)repoauction at a fixed rate.This means RBI is ready to sell securities at fixed rate.F ixed rate that means rates of security could bechanged on demand and supply basis.Changes in the fixed repo rate are usually made in

the annual monetary and credit policy or in the midterm review of the monetary and credit policy.



RBI and reverse repo

RBI conducts fixed rate auctions of reverse repo at arate higher than the repo rate.The reserve repo rate is linked to the repo rate in thesense that it is set at specific percentage point abovethe repo rate.



Conclusion

Money Market is part of financial marketwhere instruments with high liquidity andvery short term maturities are traded. Due tohighly liquid nature of securities and theirshort term maturities, knowledge about itsinstruments are necessary by which individual

Can able to make more money and enjoy itsbenefits.



19/01/2012 28

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