The entire money market in India can be divided into two
parts. They are organised money market and the unorganised money
market. The unorganised money market can also be known as an
unauthorised money market.
Composition of Indian Money Market:
Call
Money Market:
It an important sub market of the Indian money market. It is also
known as money at call and money at short notice. It is also called
inter bank loan market. In this market money is demanded for
extremely short period. The duration of such transactions is from few
hours to 14 days. It is basically located in the industrial and
commercial locations such as Mumbai, Delhi, Calcutta, etc. These
transactions help stock brokers and dealers to fulfils their
financial requirements. The rate at which money is made available is
called as a call rate. Thus rate is fixed by the market forces such
as the demand for and supply of money.
Commercial
Bill Market:
It is a market for the short term, self liquidating and negotiable
money market instrument. Commercial bills are used to finance the
movement and storage of agriculture and industrial goods in domestic
and foreign markets. The commercial bill market in India is still
underdeveloped.
Treasury
Bill Market:
This is a market for sale and purchase of short term government
securities. These securities are called as Treasury Bills which are
promissory notes or financial bills issued by the RBI on behalf of
the Government of India. There are two types of treasury bills. (i)
Ordinary or Regular Treasury Bills and (ii) Ad Hoc Treasury Bills.
The maturity period of these securities range from as low as 14 days
to as high as 364 days. They have become very popular recently due to
high level of safety involved in them.
Market
for Certificate of Deposits (CDs):
It is again an important segment of the Indian money market. The
certificate of deposits is issued by the commercial banks. They are
worth the value of Rs. 25 lakh and in multiple of Rs. 25 lakh. The
minimum subscription of CD should be worth Rs. 1 Crore. The maturity
period of CD is as low as 3 months and as high as 1 year. These are
the transferable investment instrument in a money market. The
government initiated a market of CDs in order to widen the range of
instruments in the money market and to provide a higher flexibility
to investors for investing their short term money.
Market
for Commercial Papers (CPs):
It is the market where the commercial papers are traded. Commercial
paper (CP) is an investment instrument which can be issued by a
listed company having working capital more than or equal to Rs. 5 cr.
The CPs can be issued in multiples of Rs. 25 lakhs. However the
minimum subscription should at least be Rs. 1 cr. The maturity period
for the CP is minimum of 3 months and maximum 6 months. This was
introduced by the government in 1990.
Short
Term Loan Market:
It is a market where the short term loan requirements of corporates
are met by the Commercial banks. Banks provide short term loans to
corporates in the form of cash credit or in the form of overdraft.
Cash credit is given to industrialists and overdraft is given to
businessmen.