Call / Money Market
A market for short term instruments- overnight to 1 year
•Call money: one day market.
•Notice money: 2 days to 14 days market.
•Term money: Market for period exceeding 14 days.
Participants in the market: SCBs (excluding RRBs), Cooperative Banks other than land development bank and Primary Dealers.
Borrowing limit: SCBs: 125% of their capital funds in call/notice money market. 100% fortnightly average.
Lending limit: SCBs 50% of their capital funds on any day, average fortnightly 25%.
Money Market instruments and operations
1.Treasury Bills: –To finance short term debt obligation of GOI. –Three types of T Bills are issued 91 days, 182 days and 364 days through bidding. –Quoted at a discount price. Min. Rs 25000. –
2.Certificate of Deposit (CD): –CD is a negotiable instrument issued at discount in demat form as a usance promissory note by SCBs excluding RRBs / LABs / all India FI. –Banks-Tenor not less than 7 days and max -1 year. –FIIs –min -01year and max – 3 years –Min amount Rs 1 lakh or multiples thereof. –
3.Commercial Paper (CP): By corporate, all India FIs and PDs(primary dealers). –Issued by a corporate at discount. –Eligibility:TNW is not less than Rs 4 cr and sanctioned WC limit by bank/FIs & A/c is in Standard asset. Min credit rating P-2 of CRISIL or equivalent rating. –to Maturities:7 days 1 year. –Denomination Rs 5 lakh or multiples thereof.
5. Reverse Repo –
6. Collateralized Borrowing & lending obligation (CLBO): –Operated by CCIL for its members to borrow or lend funds against the collateral of eligible securities. –Issued at discount, maturity one day to 90 days.
Fixed income market
1.Govt. Securities: 1.Includes Central Govt. securities, T. Bills, State Development loans. 2.Issued to finance the fiscal deficit and managing the temporary cash mismatches. 3.Issued at par value and have a coupon rate. 4.These securities pay interest at the coupon rate on a half yearly basis. 5.Highly liquid instruments
2.Corporate Bond Market: 1.Bonds issued by corporate for their normal business activities. 2.Primary corporate debt market is dominated by finance companies.
3.Interest Rate derivatives: –is an instrument where the underlying asset has the right to pay or receive amount of money at a given interest rate. 1.Interest Rate swap: Two parties agree to exchange interest rate cash flows, based on a Notional Principal amount from fixed to floating & vice versa 2.Interest rate futures: It is a contract between buyer & seller agreeing to future delivery of an interest bearing security
4.Inter corporate deposits(ICD): 1.Unsecured borrowing by corporate/FIs from other corporate registered under Co. Act. 2.ROI of ICD would be higher than those of CD market. 3.ICD restricted to 50% of Net Owned Funds and minimum tenor is 7 d to 1 year.
Foreign Exchange Market
•Exchange rate of one currency in terms of another currency is determined simply by supply and demand. • •
•It is a 24 hour market that does not depend on certain business hours of foreign exchanges, trade take place among banks located in different corners of the globe.
LIBOR & MIBOR
•LIBOR stands for London Inter Bank Offered Rate. –This is very popular benchmark and is issued for $, GBP, Euro, Swiss Franc, Canadian Dollar and Japanese Yen (6 currencies). –The British Bankers Association (BBA) asks 16 banks to contribute to the LIBOR for each maturity and for each currency.
•MIBOR stands for Mumbai Interbank Offered Rate –MIBOR is closely modeled on the LIBOR. –MIBOR is calculated everyday on by NSE as a weighted average of lending rates of a group of banks on funds lent to 1st class borrowers.
Foreign Exchange Management Act 1999 (FEMA)
•FEMA administers foreign exchange Transactions • •
•Facilitates external trade • •
•Promotes foreign exchange market in India. • •
•FEMA extends to the whole of India.
That’s all about Unit-04 , I hope you easily understand and score better marks.