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- Indian Money Market and
- Indian Capital Market
Now let's have a brief review of them.
Money Market :
Money Market is a Market for 'near money' or it is the market for borrowing and lending of short-term funds.
Instruments of Money Market
T-Bills or Treasury bills are the government bonds, which are used to raise funds form the money market.
- 91 Days Treasury Bills (T-Bills) used by the government to raise funds from the market for short periods nothing but short-term government bond.
- 182 Days T-bills introduced on the recommendation of Vaghul working gropus, are variable interest bills sold through fortnightly auctions.
- 364 Days T-bills introduced on the recommendation of Vaghul working group. These are long dated bills, whose yields reflects the market conditions.
- 14 Days T-bills introduced in April 1997 by the RBI at a discount rate equivalent to the rate of interest on Ways and Means Advance (WMA0 to the Government of India.
- Dated Government Securities are also type of Treasury bills recommended by Chakravarty Committee on Monetary System (1988). These are 5 year and 10 year maturity government securities sold on an auction basis.
- Certificate of Deposits : It is the certificate issued by bank / financial institute, who give funds on short-term basis. Commercial Banks are a saving certificate entitling the bearer to receive interest. The maturity of a CoD varies from 3 months to 1 years.
- Commercial Paper : It is an instrument to raise short-term funds by the corporate sector. It can be issued by a listed company with a working capital of almost 5 crore. The CP is issued in multiples of Rs. 25 lakh subject to a minimum issue of Rs. 1 crore. The maturity of CP is between 3 to 6 months.
- Money Market Index : It is an index, which helps investors to decide how much and where to invest in money market through providing information about prevailing market ratio.
- Bankers Acceptance Rate : It is the rate, at which the banker's acceptance is traded in secondary market.
- LIBOR / MIBOR : London Inter-Bank Offered Rate / Mumbai Inter-Bank Offered Rate is the interest rate, at which bank borrows funds from other banks.
Capital Market
- FM refers to all those institutions, which help the private and public enterprise to raise funds.
- In that money market deals with the provision of raising short-term fund with maturity less than 1 year.
- While capital market is concerned with provision of raising long-term funds of maturity 1 year or more.
- Capital market can be classified into Debt Market and Equity Market.
- In Debt Market, a company can acquire funds only by incurring debt and lender is guaranteed of a fixed repayment e.g., bond.
- In Equity Market, funds can be raised without incurring debt those, who finance the enterprise by purchasing equity instrument like shares.
shared by T. CH. K. Babu
Manager : Vijaya Bank, Hyderabad
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thanks for the Post.
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ReplyDeleteCP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue
ReplyDelete