Money market operations on February 25, 2013 saw: 1) Overnight lending rates in the call, CBLO, repo and reverse repo segments ranging from 6.4-7.95%. 2) The RBI's marginal standing facility rate was 8.75% and its liquidity adjustment facility repo rate was 7.75%. 3) Scheduled commercial banks' cash reserves with the RBI totaled Rs. 259,586 crore, above the average daily reserve requirement of Rs. 276,960 crore for that fortnight.

1.
FINANCIAL MANAGEMENT
D
MONEY MARKET
SUBMITTED BY
DEEPAK R GORAD
AMOL KAKDE
GIRISH SUVARNA
PRATIK WASNIK

2. MONEY MARKET
INTRODUCTION
Money market means market where money or its equivalent can be traded.
Money is synonym of liquidity. Money market consists of financial institutions
and dealers in money or credit who wish to generate liquidity. It is better known
as a place where large institutions and government manage their short term
cash needs. For generation of liquidity, short term borrowing and lending is
done by these financial institutions and dealers. Money Market is part of
financial market where instruments with high liquidity and very short term
maturities are traded. Due to highly liquid nature of securities and their short
term maturities, money market is treated as a safe place. Hence, money market
is a market where short term obligations such as treasury bills, commercial
papers and bankers acceptances are bought and sold.
PURPOSE
Money Market transactions are used for the short- to medium-term investment
or borrowing of liquid funds.

3. FEATURES
The product types in the Money Market area are:
_ Fixed-Term Deposit
_ Deposit at Notice
_ Commercial Paper
The functions offered support the trading activities involved in preparing and
entering transactions in addition to the back office activities such as monitoring,
accounting, payment control and transaction analysis. Many steps in this
process chain are automated by the SAP R/3.
System and the status of a transaction can be evaluated and monitored at any
time. To access the Money Market module, proceed as follows:
Choose Accounting _ Treasury _ Treasury Management _ Money Market.
The following sections give you an overview of the Money market functions.
The collective processing function simplifies the transaction management
process by displaying a list of all the transactions with common selection
criteria. From here, you simply click a button to branch to the various
processing options. To speed up processing, there is a Fast entry function in
the Money Market and Foreign Exchange areas for the most common
transactions. The Money Market area also has a Fast processing function.
The trading area also includes some Utilities:
- Date check (to determine whether the requested due date falls on a workday).
- Option price calculator, which you use to compare the option prices requested
with your own calculations based on market data (only in the Foreign Exchange
and Derivatives areas).

4. - Securities account cash flow in the Securities area, which displays all the
flows for a security in a particular securities account.
The specific characteristics of certain products call for other activities, which
you can carry out in the trading area. These are order execution and order
expiration as well as knock-in/knock-out activities for OTC transactions. In the
Securities area, you can exercise different rights (conversion rights,
subscription rights, exercise warrants, and detach warrants).
IMPORTANCE
SOURCE OF CAPITAL
Money market is an important source of financing for trade and industry. The
short-term finances are made available through bills, commercial papers, etc.
The happenings in the money market influence the availability of finances
both for the national and international trade. Besides trade and industry,
money market offers to the government an important non-inflationary avenue
of raising short-term funds through bills that are subscribed by commercial
banks and the public.
IDEAL INVESTMENT
Money market offers an ideal source of investment for the commercial
banks. The market helps them invest their short-term surplus funds so as to
meet statutory reserve requirements. For instance, the requirements of Cash
Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) vary every
fortnight depending on banks’ Net Demand and Time Liability (NDTL).

5. EFFECTIVE MONETARY MANAGEMENT
An efficient money market being sensitive in nature allows for the effective
implementation of monetary policy of the central bank and thus paves way
for the efficient monetary management of the country. In fact, the money
market events serve as an important guide to the government in formulation,
revising and implementing its monetary policy. This is rightly so, given the
fact that the conditions prevailing in money market serve as an indicator of
monetary state of an economy.
The monetary authority uses the money market for diffusing the
effects of its actions throughout the banking system and the economy, so as
to promote economic growth with stability.
ECONOMIC DEVELOPMENT
Money market being an integral part of a country’s economy, contributes
substantially to the economic development of a country. A developed money
market is indispensable for the rapid development of the economy. In fact,
the stage of development of the economy will be reflected in the stage of
development of a money market. This is borne out by the fact that ill developed
nature of a money market is responsible for the primitive nature of
economic development of a country. The absence of a well-developed
money market would constrain the economies from making available, on a
continuous basis the supply of adequate funds.

6. EFFICIENT BANKING SYSTEM
The existence of a developed money market greatly facilitates the smooth
and efficient functioning of the banking and financial system. Such an
advantage contributes to the promotion of trade and industry in the economy.
Further the mediating role played by the commercial bankers ensures
delivery of credit at the most opportune time. Similarly, money market
enables the commercial banks to meet much of their unexpected needs for
funds quickly and cheaply. It is possible for the commercial banks to utilize
their funds profitably and with liquidity.
FACILITATING TRADE
Money market is of immense help to the business community in the
following ways:
1. Providing an ideal payment mechanism making it possible for
expeditious transfer of large sums of money.
2. Meeting the working capital requirements for carrying out the
production and marketing activities.
3. Making efficient investment of surplus funds into near-money assets
which can be quickly converted into money as and when needed.
HELPFUL TO GOVERNMENT
The government uses the money market as an arena in which short-term
funds are raised by floating treasury bills. It helps the government manage its
monetary position smoothly through the central bank of the county.

7. FUNCTIONS
INVESTMENT FUNCTION
The money market provides an ideal source for investment of the funds for a
short period of time for commercial banks, non banking financial concerns,
business corporations and other investors. It enables businessmen, with
temporary surplus funds, to invest them for a short period.
FINANCING FUNCTION
Money market provides an ideal source for short-term financing for
businessmen, industrialists, traders, etc to meet their day-to-day requirements
of working capital. Funds are available for borrowing by the government and
its agencies also.
FACILITATING FUNCTION
Money market provides an ideal play ground for the central monetary
authority of the country to carry out various regulatory operations relating to
the banking and financial system of the country. The sensitive nature of the
money market helps the central bank to make it an ideal arena for the
execution of various credit control measures.
TRADING USE
The trading area contains the main functions for entering financial transactions.
You can enter transactions, call up information on existing transactions, or
make changes to transactions at a later date.
In the Money Market, Foreign Exchange, and Derivatives areas, you can also
give notice on and roll over transactions.

8. PREREQUISITES
You have to enter the master data before you can create a financial transaction
in the trading area. In the Money Market, Foreign Exchange, and Derivatives
areas, this means entering master data for the respective business partner in
the role of Treasury partner. Before you create a securities order, you must
enter the issuer, the depository bank, and the securities class data in the
Securities area.
INSTRUMENTS
Investment in money market is done through money market instruments. Money
market instrument meets short term requirements of the borrowers and
provides liquidity to the lenders. Some common Money Market Instruments are
as follows:
 TREASURY BILL
Treasury Bills, one of the safest money market instruments, are short term
borrowing instruments of the Central Government of the Country issued through
the Central Bank (RBI in India). They are zero risk instruments, and hence the
returns are not so attractive. It is available both in primary market as well as
secondary market. It is a promise to pay a said sum after a specified period. T-
bills are short-term securities that mature in one year or less from their issue
date.
 GOVERNMENT SEQURITY
Government Securities are securities issued by the Government for raising a
public loan or as notified in the official Gazette which are issued by RBI on
behalf of Govt. of India (GOI). GOI uses these borrowed funds to meet its fiscal

9. deficit, while temporary cash mismatches are met through treasury bills of 91
days.
REPOS
The term Repo is used as an abbreviation for Repurchase Agreement or
Ready Forward. A Repo involves a simultaneous “sales and repurchase”
agreements.
BENEFITS & FEATURES
1. Interest Rate Being collateralized loans, repos help reduce counter
party risk & therefore, fetch a low interest rate.
2. Contract The Repo contract provides the seller – bank to get money
by partying with its security and the buyer – bank in turn to get the
security by parting with its money. It becomes a Reserve Repo deal for
the purchaser of the security. Securities are sold first to a buyer bank
and simultaneously another contract is entered in to with buyer to
repurchase them at a predetermine date and price in future. The price
of the sale and repurchase of securities is determined before entering
into deal.
3. Safety Repo is an almost risk free instrument used to even out
liquidity changes in the system. Repos offer short-term outlet for
temporary excess cash at close to the market interest rate.

10. 4. Hedge tool As purchaser of the repo requires title to the securities for
the term of agreement and as the repurchase price is locked in at a time
of sale itself. It is possible to use repos as an effective hedge-tool to
arrange the others repos or to sell them outright or to deliver them to
another party to fulfill the delivery commitment in respect of a forward
or future contract or a short sale or a maturing reverse repo.
5. Period The minimum period for Ready Forward Transaction Bill will
be 3 day. However, RBI withdraws this restriction for the minimum
period with the effect from October 30, 1998.
6. Liquidity Control The RBI uses Repo as a tool of liquidity control
for absorbing surplus liquidity from the banking system in a flexible
way and thereby preventing interest rate arbitraging. All Repo
transaction are to be effected at Mumbai only and the deals are to be
necessary put through the subsidiary General Ledger (SGL) account
with the Reserve Bank of India.
7. Cash Management Tool The Repo arrangement essential serves as a
short – term cash management tool as the bank receive cash from the
buyer of the securities in return for the securities. This helps the banker
meet temporary cash requirement. This also makes the repo a pure
money lending operation. On the maturity of the ‘repos’ the security is
purchased back by the seller bank from the buyer-bank by returning
the money to the buyer.

11. MONEY MARKET ACCOUNT
It can be opened at any bank in the similar fashion as a savings account.
However, it is less liquid as compared to regular savings account. It is a low risk
account where the money parked by the investor is used by the bank for
investing in money market instruments and interest is earned by the account
holder for allowing bank to make such investment. Interest is usually
compounded daily and paid monthly. There are two types of money market
accounts:
 Money Market Transactional Account By opening such type of account,
the account holder can enter into transactions also besides investments,
although the numbers of transactions are limited.
 Money Market Investor Account By opening such type of account, the
account holder can only do the investments with no transactions.
MONEY MARKET INDEX To decide how much and where to invest in
money market an investor will refer to the Money Market Index. It provides
information about the prevailing market rates. There are various methods of
identifying Money Market Index like:
 Smart Money Market Index It is a composite index based on intraday
price pattern of the money market instruments.
 Salomon Smith Barney’s World Money Market Index Money market
instruments are evaluated in various world currencies and a weighted
average is calculated. This helps in determining the index.

12.  Banker’s Acceptance Rate As discussed above, Banker’s Acceptance is a
money market instrument. The prevailing market rate of this instrument
i.e. the rate at which the banker’s acceptance is traded in secondary
market, is also used as a money market index.
 LIBOR/MIBOR London Inter Bank Offered Rate/ Mumbai Inter Bank
Offered Rate also serves as good money market index. This is the
interest rate at which banks borrow funds from other banks.
GROWTH OF MONEY MARKET IN INDIA
ARTICLE
Capital investment is the backbone of every developing economy. It is also
considered to be one of the most important determinants of the rate of growth of
an economy and the governments in the developing countries strive very hard
to ensure that the level of capital investment is kept high. To augment the
internal investment potential, the governments in the Developing countries aim
at achieving higher inflows of foreign investment, both as FDI as well as FII.

13. Money Market Operations as on February 25, 2013
(Amount in ` crore, Rate in per cent)
MONEY MARKETS @
Volume Wtd.Avg.Rate Range
(One Leg)
A. Overnight Segment 100,082.47 7.80 6.40-7.95
(I+II+III+IV)
I. Call Money 19,322.47 7.85 6.40-7.95
II. CBLO 50,189.00 7.73 7.65-7.85
III. Market Repo 30,571.00 7.87 7.70-7.95
IV. Repo in Corporate 0.00 - -
Bond
B. Term Segment
I. Notice Money** 343.99 7.43 6.40-7.65
II. Term Money@@ 1,695.00 - 7.75-9.65
III. CBLO 0.00 - -
IV. Market Repo 1,800.00 8.25 8.25-8.25
V. Repo in Corporate 0.00 - -
Bond
RBI OPERATIONS
Amount
Rate
Outstanding
C. Liquidity Adjustment Facility
(i) Repo (1 day) 128,425.00 7.75
(ii) Reverse Repo (1 day) 25.00 6.75
D. Marginal Standing
Facility (1 day) 0.00 8.75
E. Standing Liquidity Facility Availed from
RBI 25,609.62 7.75
of which
(i) Special Refinance Facility^ 0.00
(ii) Refinance under the forex swap ~ 5,743.95

14. RESERVE POSITION @
F. Cash Reserves Position of Scheduled Commercial Banks
(i) Cash balances with RBI as on # 21/02/2013 259,586.00
(ii) Average daily cash reserve requirement 22/02/2013 276,960.00
for the fortnight ending
@ The information is based on provisional Reserve Bank of India (RBI) / Clearing Corporation of India Limited
(CCIL) / Fixed Income Money Market and Derivatives Association of India (FIMMDA) Data.
- Not Applicable / No Transaction
** Relates to uncollateralized transactions of 2 to 14 days tenor
@@ Relates to uncollateralized transactions of 15 days to one year tenor
# The figure for the cash balances with RBI on Sunday is same as that of the previous day (Saturday).
^ Under Section 17(4-J) of the RBI Act 1934.
~ Under Section 17(3-A) of the RBI Act 1934.
Ajit Prasad
Assistant General Manager
Press Release : 2012-2013/1435