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Financial Instruments

  • Date Submitted: 07/18/2011 07:34 AM
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Financial instruments of money market

Money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames.

            Trading in the money markets involves Treasury bills, Commercial paper, Bankers' acceptances(acceptance house), Certificates of deposit, Repurchase agreements(REPO). It provides liquidity funding for the global financial system.

Treasury Bills:

(Short-term debt obligations of a national government that are issued to mature in three to twelve months.)

Treasury Bills are the instruments of short term borrowing by the Central/State govt. These were first issued in India in 1917.

    ➢ They are promissory notes issued at discount and for a fixed period.

    ➢ These are issued to raise funds for meeting expenditure needs.

    ➢ Treasury bills can be purchased by any one (including individuals) except State govt.

    ➢ These are issued by RBI and sold through fortnightly or monthly auctions at varying discount rate depending upon the bids.

    ➢ Subscriptions can be for a minimum amount of Rs.10,000 and in multiples of Rs.10,000. There is no specific amount/limit on the extent to which these can be issued or purchased.
  Types of T-bills: They are basically in 3 types.
    1. 91-day TB.
    2. 182-day TB.
    3. 364-day TB.
|91-day T-bills are auctioned every week on Wednesdays.                                                                                       |
|182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.                                                               |
|The Reserve Bank of India announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior|
|to every auction.                                                                                                                           |
|Type of...

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