World Of Finance

Money Market Instruments provide the tools by which one can operate in the money market. Common types Of Money Market Instruments are: Treasury Bills:   The Treasury bills are short-term money market instrument that mature in a year or less than that. The purchase price is less than the face value. At maturity the government pays the Treasury Bill holder the full face value. TheTreasury Bills are marketable, affordable and risk free. The security attached to the treasury bills comes at the cost of very low returns. Certificate of Deposit: The certificates of deposit are basically time deposits that are issued by the commercial banks with maturity periods ranging from 3 months to five years. The return on the certificate of deposit is higher than the Treasury Bills because it assumes a higher level of risk. Advantages of Certificate of Deposit as a money market instrument are 1. Since one can know the returns from before, the certificates of deposits are considered much s

While the need for long term financing is met by the capital or financial markets , money market is a mechanism which deals with lending and borrowing of short term funds. Post reforms age in India has witnessed marvelous increase of the Indian money markets . Banks and other financial institutions have been able to meet the high opportunity of short term financial support of important sectors like the industry, services and agriculture. It performs under the regulation and control of the Reserve Bank of India (RBI). The Indian money markets have also exhibit the required maturity and flexibility over the past two decades. Decision of the government to permit the private sector banks to operate has provided much needed healthy competition in the money markets resulting in fair amount of improvement in their performance. Money markets denote inter-bank market where the banks borrow and lend between themselves to meet the short term credit and deposit needs of the economy. Short

Role of Government: To increase the constancy of Financial Institutions and Markets Government intervenes in the interest rates and money supply in the Money Markets. Government has several ways to control income and interest rates which can be divided into two broad groups such as, •        Fiscal policy  •        Monetary policy The government to adjust the exchange rate intervenes with the foreign exchange markets ; there may be a result on the financial base and the supply of money. When the currency is falling, foreign currencies should be sold and the currency should be bought to steady its price. The use of deposits of the national currency to do this suggest that the prepared deposits of the banking sector must be reduced, causing the financial base to fall, affecting the supply of money. Equally by selling thenational currency to decrease its rate, the monetary base will increase. Securities may be sold on the open market in an effort to dampen the effects of inflows of t

The market that borrows and lends short-term funds is called the money market. The instruments in the money market are short-term in nature and are highly liquid. Money market plays an important function of transferring funds to those economic units who have short-term requirements for funds. In money markets short-term debts instruments in particular are traded by individuals, corporations, government. The short-term instruments are with a maturity of one year or less is issued by those economic units that require short-term funds and lent by people who have surplus short-term funds. The need for money market arises due to the immediate cash requirements of people which do not necessarily match with their cash receipts. Participants in money market and their roles played   Government - Borrower/Issuers Central Bank- Intermediary Banks - Borrower/Issuers Financial Institutions - Borrower/Issuers Corporate Units - Issuers MF’s, - lenders/Investors Dealer