Money Market
Economics · मुद्रा बाजार
📋Quick Overview
The Money Market is the market for short-term funds (up to 1 year). It deals in highly liquid, low-risk instruments like Treasury Bills, Commercial Paper, and Certificates of Deposit. The Capital Market is for long-term funds (more than 1 year) and includes stock exchanges, bond markets, etc. RBI is the regulator of the Money Market, while SEBI regulates the Capital Market.
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Money Market = Short-term (up to 1 year), regulated by RBI. Capital Market = Long-term (more than 1 year), regulated by SEBI.
📖Money Market Instruments
| Instrument | Duration | Issuer | Key Feature |
|---|---|---|---|
| Call Money | 1 day (overnight) | Banks to banks | Shortest duration. Rate = Call Rate. Indicator of liquidity in banking system |
| Notice Money | 2 to 14 days | Banks to banks | Same as call money but for slightly longer period |
| Treasury Bills (T-Bills) | 91 / 182 / 364 days | Government of India (RBI) | Zero-coupon securities (issued at discount, redeemed at par). Safest money market instrument. Minimum Rs 25,000 |
| Commercial Paper (CP) | 7 days to 1 year | Corporates (highly rated) | Unsecured promissory note. Only creditworthy companies can issue. Min Rs 5 lakh |
| Certificate of Deposit (CD) | 7 days to 1 year (banks), 1-3 years (FIs) | Banks & Financial Institutions | Negotiable term deposit. Freely tradable. Issued in demat form |
| Repo (Repurchase Agreement) | 1 day to 14 days | RBI with banks | Sale of securities with agreement to repurchase. Repo rate = lending rate |
| CBLO (Collateralized Borrowing) | 1 day to 90 days | CCIL-operated | Collateralized lending/borrowing for entities with limited access to call money market |
📖Money Market vs Capital Market
📝NBFCs (Non-Banking Financial Companies)
- •NBFCs are registered under Companies Act and regulated by RBI under RBI Act 1934
- •NBFCs CANNOT accept demand deposits (savings/current accounts)
- •NBFCs are NOT part of the payment and settlement system (cannot issue cheques)
- •NBFC deposits are NOT insured by DICGC (unlike bank deposits up to Rs 5 lakh)
- •Examples: LIC Housing Finance, Bajaj Finance, Muthoot Finance, HDFC Ltd (before merger)