OMTEX CLASSES: Describe various money market instruments?

Describe various money market instruments?



Meaning: - The financial instruments for raising short term funds in the money market are known as Money Market Instruments and they are as follows:-

1.       Commercial Paper: -The commercial papers are debt instruments which are issued by corporate houses for raising short term financial resources from the money market. They are unsecured debts. They are issued in the form of promissory notes. They are issued at discount. Their face value is in multiple of Rs 5 lakhs. The minimum maturity of these instruments is brought down from three months to 30 days and is further reduced to 15 days with effect from May 25th, 1998.

2.       Commercial Bills: -It is the most common method to meet the credit needs of trade and industry. The bank can rediscount the bills and are able to meet the short term liquidity requirements. The maturity period of these bills is 90 days.

3.       Certificate of deposits: -They are negotiable term deposit certificates issued by commercial banks or financial institutions at discount, at par or at market rate. The maturity periods of this instrument from 15 days to 1 year.

4.       Treasury Bills: -These bills are in the nature of promissory notes. They are issued by the government at discount for a fixed period not exceeding 1 year, containing a promise to pay the amount stated to the bearers of the instruments. The maturity period of bill is 182 days. These bills enjoy a high degree of liquidity. 

5.       Government securities: -The marketable debts issued by the government or semi-government bodies which represent claims on the government are known as government securities. These securities are issued by agencies such as central government, state government, local self government such as municipalities, etc. these investments are safest investments.

6.       Money market mutual funds: -These are mutual funds that solely in money market instruments. They are in the form of debts that mature in less than a year and are very liquid. They are the safest and most secure of mutual funds investments.


7.       Repo Rate: -It is the repurchase rate which is also known as the official bank rate. The repo rate is the discounted interest rate at which a central bank repurchases the government securities. The partly borrowing the security is known as buyer and the lender is the seller. It is the transaction which is carried by the central bank with the commercial banks to reduce some of short term liquidity in the system.