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UBMITTED BY: PARAKH TOMAR                                   1512034                                    [email protected] DEVELOPMENT IN INDIAN MONEY MARKETMONEY MARKETINTRODUCTION:Basically money market is a market which is a combination of various firms and institutions that mainly deals in different grades of the market.A money market   is generally different from the commercial banking system.MEANING:Basically money market is a combination of two words MONEY and MARKET. Here, the word MONEY refers to a specific value or a denomination that can be used as   an exchange value for the purchase or sale of goods or services and the MARKET is a platform or a place where buyers and sellers comes into the contract. The contract can takes place in any of the ways, directly or indirectly. CLASSIFICATION OF MARKETThe classification of market is divided into three major parts:On the basis of timeOn the basis of placeOn the basis of competetion MAJOR MONEY MARKET INSTRUMENTSMajor or the important money market instruments. Those major money market instruments are as follows:TREASURY BILLSTreasury bills also known as T-bills are generally short term debt instruments that can be issued for less than or equal to one year. Treasury bills are considered as the safest short- term debt instruments because they are backed by the United States government.Treasury bills can be sold for four thirteen,twenty-six or fifty two weeks maturity periodCOMMERCIAL PAPERSCommercial papers are also the short term debt instruments but commercial papers are not the secured short-term debts. Commercial papers are majorly issued for meeting the short-term needs. Commercial papers generally matures within 270 days, they rarely lasts longer than that.CERTIFICATE OF DEPOSITCD or certificates of deposit is a saving certificate that is issued with a fixed interest rate. Certificates of deposits can be issued in any denomination. Commercial banks generaly issues certificates of deposits to its customers and charge a fixed rate of interest.BILLS OF EXCHANGEBills of exchange is a written document and an unconditional order that has been drawn by the drawer and is accepted by the drawee, paying a certain sum of money on a fixed date for the payment of goods purchased.REPURCHASE AGREEMENTSThey are also known as repo.  Repo maturities can be of two types TERM and OPEN REPO. TERM refers to that maturity period having a specified date of maturity.OPEN REPO means where there no maturity date is being mentioned.STRUCTURE OF INDIAN MONEY MARKETThe reserve bank of India is the central banking institution that controls the monetary policy of Indian market. The structure of Indian money market includes organized and unorganized markets. Here the organized market in India is not a single market but it is a combination of markets of various instruments.On the other hand the unorganized market includes indigenous bankers, domestic money, chit funds, brokers, dealers, friends etc. The unorganized market is also known as unauthorized money market. The participants of the money market  we will discuss in the heads MAIN PARTICIPANTS OF MONEY MARKET.MAIN PARTICIPANTS OF MONEY MARKETBasically any one can participate in the money market but to ensure a free flow there are certain restrictions. So, following are the participants who can easily participate in the money market these are:CENTRAL GOVERNMENTThe central government acts as the issuer of the government of India securities and treasury bills .these instruments are issued to maintain a cash flow.STATE GOVERNMENTThe state government also issues securities termed as state development loans, which are majorly a source of medium term and long term bonds.PUBLIC SECTOR UNDERTAKINGPublic sector undertaking majorly issues bonds  that are either medium term or long term coupon securities. SCHEDULED COMMERCIAL BANKSThe scheduled commercial banks are major participants of money market. They helps in issuing and regulating the unsecured and negotiable. Mainly they issues at a discount rate in accordance with the face values. The period of their issues can range between 7 days to 1 year. PRIVATE SECTOR COMPANIESPrivate sector companies also act as a participant in the money market as they issues commercial papers and sometimes corporate debentures. They issues short term and negotiable instruments which are mainly in the unsecured form.PROVIDENT FUNDSProvident funds are generally managed by the government to ensure after retirement savings. Basically the provident fund is the amount that has been contributed from the employee’s salary ant after the retirement of that employee the contributed amount is given back to the employee, termed as provident fund.GENERAL INSURANCE COMPANIESGeneral insurance companies also known as non-life insurance companies also come under the participants of money market as they maintain funds that has to be invested in certain investments.LIFE INSURANCE COMPANIESLife insurance companies provide insurance against the life of a person where the insured gives a specific amount, termed as the premium and the company gives the insurance. Here the company invests that amount in government securities, bonds or short term funds.MUTUAL FUNDSMutual funds are the funds that have been invested by a group of people mutually in small amounts. Companies invest that amount in money market and in debt instruments.NON-BANKING FINANCE COMPANIESNon banking finance companies are required to invest around 15% of their net worth in which bonds fulfill the SLR needs.PRIMARY DEALERS The primary dealers were permitted by the reserve bank in India. These institutional entities are registered with the reserve bank of India.FUNCTIONS OF THE MONEY MARKETTO MAINTAIN MONETARY EQUILIBRIUMTo maintain monetary equilibrium means to keep a balance of money between demand and supply for short term money transactions.TO PROMOTE ECONOMIC GROWTHThe function of money market also includes the promotion of  economic growth. This can be done by making funds available in the economy.These funds must be provided to support agriculture, or small scale industries etc.TO PROVIDE HELP TO TRADE AND INDUSTRYAs money markets provide adequate funds in the economy for trade and industry purposes. In the same way money markets also provides facility of discounting of bills of exchange for trading and industry purposes. TO HELP IN IMPLEMENTING MONETARY POLICYAs money market enables easy flow of money in the economy this further helps in the implementation of various monetary policies.  The monetary policies can be implemented easily and in effective manner.TO HELP IN CAPITAL FORMATIONAs money market helps in the availability of various investment avenues generally for short term this therefore helps in the generation of savings and investments in the economy.TO PROVIDE NON-INFLATIONARY SOURCES OF FINANCE TO GOVERNMENTThe function of money market also includes providing the non- inflationary sources of finance in the market. This can be possible by issuing the t-bills so that the short term finances can be raisedABOVE WE HAVE DISCUSSED ABOUT THE MAONEY MARKET IN GENERAL BUT NOW WE’LL DISCUSS ABOUT THE INDIAN MONEY MARKET.SO, HERE COMES THE DEVELOPMENT OF MONEY MARKET IN INDIA. MONEY MARKET IN INDIAThe money market in India is mainly concerned with the short-term funds of which maturity period ranges from overnight to one year only. In India , money market also includes financial instruments that are supposed to be known as the close substitutes of money. The money market includes diversity and has evolved through so many stages.The Indian money market also consists of sub-markets which deals in short-term funds.FEATURES OF INDIAN MONEY MARKETAs money is unique in its nature because the meaning of money differs in developing and developed countries. As Indian money market is a developing country though it is the leading money market amongst those developing countries. It has some features also. Following are the features of Indian money market:DICHOTOMIC STRUCTUREAs the Indian money market consists of two markets organized market and unorganized market. The organized market is regulated by the RBI where as the unorganized marked is regulated by the domestic bankers and money lenders.SEASONALITYThe money market of India is mainly dependent on the seasons  because a major part of Indian population id mainly dependent on agriculture. Therefore during the busy season the demand for the money increases whereas during off season the demand decreases for the money.MULTIPLICITY OF INTEREST RATESIn India we consists of different levels of interest rates. These interest rates may differ from bank to bank even they might be different from one borrower to the other.LACK OF ORGANISED BILL MARKETDespite of the fact that the reserve bank of India had already introduced the bill market scheme but the billing culture had not yet been adopted in India.LIMITED INTRUMENTSIn the Indian money market the supply of money market instruments such as treasury bills, commercial papers, certificate of deposits, commercial papers etc. These money market instruments are not sufficient in order to satisfy the needs of the lenders and borrowers.DRAWBACKS OF INDIAN MONEY MARKETABSENCE OF INTEGRATIONAs the Indian money market consists of two markets organized market and unorganized market. The organized market is regulated by the reserve bank of India where as the unorganized market is not. Therefore this leads to absence of integration.MULTIPLE RATE OF INTERESTIn the Indian money market the rate of interest vary and there are many rates of interests. For example: a lower income group will have a less savings, that is why they have less banking habits among people are some of the reasons.INSUFFICIENTS FUNDS As the Indian money market has a seasonal structure, so the availability of funds will be for a limited time period or for a short –time period in the economy.SHORTAGE OF INVESTMENT INSTRUMENTSThough the variety of money instruments is large but still the population mainly prefers the cash transactions which means that the use of investment instruments is limited which is a drawback for the Indian money market.SHORTAGE OF COMMERCIAL BILLSAs in India more preference is given to cash transaction this is the reason why commercial bills lacks.LACK OF ORGANISED BANKING SYSTEMIn India though the number of commercial banks are so many in number but they lacks in inefficiency. The reason why the banks in India are inefficient because of the non-performing assets. That is why Indian money market suffers.LESS NUMBER OF DEALERSIn Indian money market may be because of less information the number of dealers in the Indian money market are poor in number. Dealers are those person who acts as a mediator between the buyer and the seller. As the number of dealers is less in the money market this further leads to the less contact between the buyer and the seller which ultimately leads to the slow down process.DEVELOPMENT IN THE INDIAN MONEY MARKETThe Indian money market was set up by reserve bank of India , public sector banks and other financial instruments the government of India tried consistently to introduce new short term investments instrument Indian government had appointed a committee in 1984 in order to review the Indian monetary system. The financial sector initiated in 1990 also the government has adopted several reforms in the Indian money market. Reforms made in Indian money market are DEREGULATION OF INTEREST RATESAs there were several interest rate which differs in rates as well as from bank to bank this creates a hurdle in regulating the money in the economy. In order to overcome this problem the interest rate were deregulated. Due to the economic reforms these interest rate were deregulated currently the interest rate are majorly determined by the market forces.MONEY MARKET MUTUAL FUNDSWith a vision to provide additional short term investment reserve bank of India encourage the money market mutual fund. The limit of 50 cr. investment has also been liftedESTABLISHMENT OF THE DFI The discount and finance house of India was setup to maintain the liquidity in the Indian money market. DFHI played important role in stabilizing the money market of India. Liquidity adjustment facility through the LAF reserve bank of India keeps its existence in the money market on continuous basis so that with the help of LAF the liquidity in the money market through absorboptin or injection of funds can be maintained.ELECTRONIC TRANSACTIONThe development in the money market also includes electronic transaction so that the transparency and efficiency in the money market can be maintained.The reserve bank of India acts as a watch dog.ESTABLISHMENT OF THE CCIL The clearing corporation of India limited it was set up in April 2001. The CCIL clears all the transactions in government securities and reported on the negotiated dealing systemDEVELOPMENT OF NEW MARKET INSTRUMENTSThe development of money market also includes consistence introduction of new short term investment instruments. For example:-treasury bills of various duration, commercial papers, certificates of deposits, etc also been introduced in the Indian money market .These were the major reforms undertaken in the money market in India. These reforms are a part of development of Indian money market. As India is a developing country so we cannot say that these reforms are enough in order to regulate the money in the economy.                                                                    Thank you