Money Market Instruments – Banking Awareness

    Money Market Instruments - Banking Awareness
    Money Market Instruments – Banking Awareness:
    A brief notes about the Money Market Instruments in India was given here below, which was important banking awareness topic for the upcoming banking exams. Candidates those who are preparing for those exams can use this.

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    Money Market Instruments
    The money market can be defined as a market for short-term money and financial assets that are near substitutes for money.

    The term short-term means generally a period up to one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost.

    Some of the important money market instruments are briefly discussed below;
    1.   Call/ Notice Money
    2.   Treasury Bills
    3.   Term Money
    4.   Certificate of Deposit
    5.   Commercial Papers

    1. Call/Notice- Money Market:1. Call/Notice money is the money borrowed or lent on demand for a very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money. Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and repaid on the next working day, (irrespective of the number of intervening holidays) is “Call Money”.
    Notice Money: When money is borrowed or lent for more than a day and up to 14 days, it is “Notice Money”. No collateral security is required to cover these transactions.

    2.Inter-Bank Term Money:Inter-bank market for deposits of maturity beyond 14 days is referred to as the term money market. The entry restrictions are the same as those for Call/Notice Money except that, as per existing regulations, the specified entities are not allowed to lend beyond 14 days.

    3.Treasury Bills:Treasury Bills are short term (up to one year) borrowing instrument of the union government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction.

    4. Certificate of Deposits:Receipt issued by a depository institution (such as a bank, credit union, or a finance or insurance company) to a depositor who opens a certificate account or time deposit account.
    Issued in a negotiable or non-negotiable form, it states the (1) amount deposited, (2) rate of interest, and (3) minimum period for which the deposit should be maintained without incurring early withdrawal penalties.

    5.Commercial Paper: An unsecured obligation issued by a corporation or bank to finance its short-term credit needs, such as accounts receivable and inventory- Commercial paper is available in a wide range of denominations, can be either discounted or interest- bearing, and usually have a limited have or nonexistent secondary market.

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