Let us know more about money market

The money market is a part of the financial market where instruments with short-term maturities are traded providing an avenue for ultra-short-term to short-term lending along with borrowing of funds with maturity ranging from overnight to one year. 

Money market transactions are generally used for including the government securities market and for meeting short-term liquidity mismatches. Being a primary source of funding, a liquid money market is critical to financial stability. The money market is integral to a country’s financial infrastructure and is the primary transmission channel of the central banks’ monetary policy. 

There are various products that are part of the Indian money market. Some of them are: 

Call money - This product/instrument in India is restricted only to scheduled commercial banks (SCBs) as well as the primary dealers (PDs). The settlement is carried out by RBI. The duration is overnight while the minimum order value is Rs 1 lakh. 

Notice money - This is an extension of the interbank call market with uncollateralised lending and borrowing of funds for a period beyond overnight and up to 14 days. The settlement is carried out by RBI. The minimum order value is Rs 1 lakh. 

Term money - This is the same as notice money but for a period between 15 days and one year. The settlement is carried out by RBI. The minimum order value is Rs 1 lakh. 

Market repo – Repo refers to borrowing funds through the sale of securities with an agreement to repurchase the same at a future date with the interest for the borrowings incorporated in the repurchase price. A reverse repo is the exact opposite transaction, which is essentially, collateralised lending of funds. The duration is overnight to one year while the minimum order value is Rs 1 crore. 

Treasury bills - In India, treasury bills (T-bills) are used for short-term borrowing by the Government of India and are considered to be a part of the money market as they mature within a year from the issue. These are basically, zero-coupon securities, which are issued at a discount and are redeemed at par.  

Commercial Paper - A commercial paper (CP) is used by Indian corporates to raise short-term unsecured funds. It is discounted instrument issued for Rs 5 lakh and multiples thereof for maturities between seven days and one year. These issuances are governed by RBI regulations. 

Certificate of deposit - A certificate of deposit (CD) is issued against funds deposited at a bank or eligible financial institutions. CDs are issued for Rs 1 lakh and in multiples of Rs 1 lakh thereafter for maturities of seven days to one year by banks and for 1-3 years by financial institutions.