8/12/2019 Treasury Market
1/34
Instruments
inTreasury Market
8/12/2019 Treasury Market
2/34
Treasury Market
8/12/2019 Treasury Market
3/34
As per RBI definitions A market for short terms financialassets that are close substitute for money, facilitatesthe exchange of money in primary and secondarymarket.
The money market is a mechanism that deals with the(less than one year). lending and borrowing of shortterm funds
A segment of the financial market in which financialinstruments with high liquidity and very shortmaturities are traded.
What is Money Market?
8/12/2019 Treasury Market
4/34
It doesnt actually deal in cash or money but
deals with substitute of cash like trade bills,
promissory notes & govt papers which can
converted into cash without any loss at low
transaction cost.
It includes all individual, institution and
intermediaries.
Continued.
8/12/2019 Treasury Market
5/34
It is a market purely for short-terms funds or
financial assets called near money.
It deals with financial assets having a maturity period
less than one year only.
In Money Market transaction can not take placeformal like stock exchange, only through oral
communication, relevant document and written
communication transaction can be done.
Features of Money Market?
8/12/2019 Treasury Market
6/34
Transaction have to be conducted without the helpof brokers.
It is not a single homogeneous market, it comprisesof several submarket like call money market,acceptance & bill market.
The component of Money Market are thecommercial banks, acceptance houses & NBFC(Non-banking financial companies).
Continued..
8/12/2019 Treasury Market
7/34
1. To provide a parking place to employ short termsurplus funds.
2. To provide room for overcoming short term deficits.
3. To provide a reasonable access to users of short-term funds to meet their requirement quickly,adequately at reasonable cost.
Objective of Money Market?
8/12/2019 Treasury Market
8/34
Money Market consists of a number of sub-
markets which collectively constitute the
money market. They are,
1. Call Money Market
2. Commercial bills market or discount market
3. Acceptance market4. Treasury bill market
Composition of Money Market?
8/12/2019 Treasury Market
9/34
Now, in addition to the above the following newinstrument are available:
Commercial papers.
Certificate of deposit.
Banker's Acceptance
Repurchase agreement
Money Market mutual fund
New instrument
8/12/2019 Treasury Market
10/34
Call money market is that part of the national
money market where the day to day surplus
funds, mostly of banks are traded in.
They are highly liquid, their liquidity being
exceed only by cash.
The loans made in this market are of the short
term nature.
CALL MONEY MARKET
8/12/2019 Treasury Market
11/34
Continued..
Banks borrow from other banks in order to
meet a sudden demand for funds, large
payments, large remittances, and to maintain
cash or liquidity with the RBI. Thus, to the
extent that call money is used in India for the
purpose of adjustment of reserves.
8/12/2019 Treasury Market
12/34
1. Scheduled commercial banks
2. Non-scheduled commercial banks
3. Foreign banks4. State, district and urban, cooperative banks
5. Discount and Finance House of India (DFHI)
6. Securities Trading Corporation of India(STCI).
Participants in the call money market
8/12/2019 Treasury Market
13/34
The rate of interest paid on call loansis known
as call rate.
Call rate is highly variable from day to day,
often from hour to hour.
It is very sensitive to changes in demand for
and supply of call loans.
Eligible participants are free to decide on
interest rates in call/notice money market.
CALL RATES
8/12/2019 Treasury Market
14/34
CALL RATE IN INDIA has reached as high a levelas30% in December 1973.
It is an alarming level for any short-term rate ofinterest to reach, and as bank defaulted in amajor way in respect of cash and liquidityrequirements at that time due to theprohibitively high cost of call money, it becamenecessary to regulate call rates within reasonable
limits. Indian Banks Association (IBA) in 1973 fixed a
ceiling of 15% on the level of call rate.
CALL RATE IN INDIA
8/12/2019 Treasury Market
15/34
Continued
The IBA lowered this ceiling of 15% to 12.5%
in March 1976,
10 % in June 1977,
and 8.6% in March 1978, and 10.0% in April
1980.
And current call rate in India is 8%.
There are now two call rates in India: one, the
interbank call rate, and the other, the lending
rate of DFHI.
8/12/2019 Treasury Market
16/34
Treasury Bills
Treasury bills are short term instruments
issued by the Reserve Bank on behalf of the
Government to tide over short term liquidity
shortfalls.
This instrument is used by the government to
raise short term funds to bridge seasonal or
temporary gaps between its receipts andexpenditure.
8/12/2019 Treasury Market
17/34
They form the most important segment in the
money market not only in India but all over the
world as well.
T- bills are repaid at par on maturity. The
difference between amount paid by the
tenderer at the time of purchase (which is less
than the face value) and the amount received at
maturity represents the interest amount on T-
bills and is known as discount. TDS is not applicable on T- bills.
8/12/2019 Treasury Market
18/34
Features of T- Bills
1. They are negotiable securities;
2. They are highly liquid as they are of short
tenure and there is apossibility of inter- bank
repos in them;
3. There is an absence of default risk;
4. They have an assured return, low transactioncost, and eligible for inclusion in the
securities for SLR purpose.
8/12/2019 Treasury Market
19/34
T- bills are available for a minimum amount of
Rs. 25, 000 and in multiples thereof.
at present there are 91 days, 182 days, and
364days T- bills.
The 91 days T- bills are auctioned by the RBI
every Friday and the 364 day T-bills everyalternate Wednesday., i.e. the Wednesday
preceding the reporting Friday.
8/12/2019 Treasury Market
20/34
Types of T- Bills
1. On Tap Bills
2. Ad hoc Bills
3. Auctioned Bills
8/12/2019 Treasury Market
21/34
Participants in T- Bill Market
1. RBI
2. Mutual Funds
3. Financial Institutions
4. Primary Dealers
5. Provident Fund
6. Corporate
7. Foreign Banks
8. FII
8/12/2019 Treasury Market
22/34
91- Days T- Bills
These T- bills are sold on tap since 1965throughout the week to commercial banks and
the public at a fixed interest rate of 4.6 percent.
They were discontinued from April 1, 1997.
In 1992- 93, a scheme for the issue of
auctioned 91- days T- bills with a
predetermined amount was introduced.
8/12/2019 Treasury Market
23/34
182- Days T- Bills
The 182- day T- bills were introduced inNovember 1986 to provide short term investment
opportunities to financial institutions and others.
These bills were periodically offered for sale on
an auction basis by the Reserve Bank.
Prior to July 1988, the auction were held every
month.Since then, however, fortnightly auctions
were held, synchronizing with reporting Fridaysof scheduled commercial banks.
These bills could not be rediscounted with RBI.
8/12/2019 Treasury Market
24/34
364- Days T- Bills
In April 1992, the 364 day T- bills wereintroduced to replace the 182- day T- bills.
In case of the 364- day bills, a multiple priceauction is conducted where successful bidders
have to pay prices they actually bid. Initially, the auction of these bills was
conducted on a fortnightly basis. The auction
evoked a good response from investors. Since 1998- 99, the periodicity of auction has
been changed to monthly against fortnightly.
Not rediscountable with RBI.
8/12/2019 Treasury Market
25/34
Commercial Paper (CP) is an unsecured
money market instrument issued in the form
of a promissory note.
It was introduced in India in 1990with a view
to enabling highly rated corporate borrowers/
to diversify their sources of short-term
borrowings and to provide an additionalinstrument to investors.
COMMERCIAL PAPER
8/12/2019 Treasury Market
26/34
Only company with high credit rating issues
CPs
CP is very safe investment because the
financial situation of a company can easily be
predicted over a few months.
CP can be issued for maturities between a
minimum of 15 days and a maximum up to
one year from the date of issue.
8/12/2019 Treasury Market
27/34
The aggregate amount of CP from an issuershall be within the limit as approved by itsBoard of Directors or the quantum indicatedby the Credit Rating Agency for the specifiedrating, whichever is lower.
As regards FIs, they can issue CP within the
overall umbrella limit fixed by the RBI i.e.,issue of CP together with other instrumentsviz., term money borrowings, term deposits,certificates of deposit and inter-corporatedeposits should not exceed 100 per cent of itsnet owned funds, as per the latest auditedbalance sheet.
8/12/2019 Treasury Market
28/34
Only a scheduled bank can act as an provider for
issuance of CP.
Individuals, banking companies, other corporatebodies registered or incorporated in India and
unincorporated bodies, Non-Resident Indians
(NRIs) and Foreign Institutional Investors (FIIs)
etc. can invest in CPs.
Amount invested by single investor should not
be less than Rs.5 lakh (face value).
However, investment by FIIs would be within the
limits set for their investments by Securities and
Exchange Board of India.
8/12/2019 Treasury Market
29/34
CP will be issued at a discount to face value as
may be determined by the issuer.
The investor in CP is required to pay only the
discounted value of the CP by means of a
crossed account payee cheque to the account
of the issuer through service provider.
Continued..
8/12/2019 Treasury Market
30/34
With a view to further widening the range ofmoney market instruments and give investorsgreater flexibility in deployment of their short-term surplus funds, Certificates of Deposit (CDs)were introduced in India in 1989.
Certificate of Deposit (CD) is a negotiable moneymarket instrument and issued in dematerialised
form of Promissory Noteagainst funds depositedat a bank or other eligible financial institution fora specified time period
CERTIFICATES OF DEPOSIT
8/12/2019 Treasury Market
31/34
Scheduled commercial banks excluding
Regional Rural Banks (RRBs) and Local Area
Banks (LABs)
Select all-India Financial Institutions that have
been permitted by RBI to raise short-term
resources within the umbrella limit fixed by
RBI.
Commercial bank and ais
CDs can be issued by
8/12/2019 Treasury Market
32/34
Banks have the freedom to issue CDs
depending on their requirements.
An FI may issue CDs within the overall
umbrella limit fixed by RBI, i.e., issue of CD
together with other instruments, viz., term
money, term deposits, commercial papers and
inter-corporate deposits should not exceed100 per cent of its net owned funds, as per
the latest audited balance sheet.
AGGREGATE AMOUNT on CD
MINIMUM SIZE OF ISSUE AND
8/12/2019 Treasury Market
33/34
Minimum amount of a CD should be Rs.1 lakh,i.e., the minimum deposit that could be acceptedfrom a single subscriber should not be less thanRs.1 lakh and in the multiples of Rs. 1 lakh
thereafter. INVESTORS (I c- fat)
CDs can be issued to individuals, corporations,companies, trusts, funds, associations, etc. Non-
Resident Indians (NRIs) may also subscribe toCDs, but only on non-repatriable basis, whichshould be clearly stated on the Certificate.
MINIMUM SIZE OF ISSUE AND
DENOMINATIONS
8/12/2019 Treasury Market
34/34
The maturity period of CDs issued by banks
should be not less than 7 days and not more
than one year.
The FIs can issue CDs for a period not less
than 1 year and not exceeding 3 years from
the date of issue.
MATURITY
Top Related