As per RBI definitions A market for short terms financial assets that are close substitute for money,

, facilitates the exchange of money in primary and secondary market.

The money market is a mechanism that deals with the lending and borrowing of short term funds (less than one year). A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.

seventh largest and second most populous country in the world private sector accounts for over 75%of its Gross Domestic Product one of the most exciting emerging money markets in the world. The average turnover of the money market in India is over Rs. 40,000 crores daily

Till 1935 - RBI was set up, Indian money market was very backward. 1951 - economic development planned was commenced 1969 - The nationalization of banks 1982 to 1988 - setting up of various committees 1991 - commencement of liberalization and globalization process development of India money market. 1994 - the securities trading corporation of India

Development of trade & industry. Development of capital market. Smooth functioning of commercial banks. Effective central bank control. Formulation of suitable monetary policy. Non inflationary source of finance government.

to

Short-term funds No fixed place for conduct of operations Dealings may be conducted with or without the help the brokers. short-term financial assets Presence of a large number of submarkets

Dichotomy Structure- simaltaneous existance of organised and unorganised money market. Seasonality Demand for money is generated from agricultural operations. Multiplicity of Interest Rates In IMM we have many levels of Intrest rates. Lack of Organized Bill Market In IMM the organised bill market is not prevalent.

Absence of Integration IMM is divided among several segments or sections . High Volatility in Call Money Market the call money market is a market for very short term money.institutions such as LIC,GIC suffer huge fluctuations and thus it has high volatility Limited Instruments :Supply of various instruments such as treasury bills, commercial bills is very limited.

Absence of Integration Multiple rate of interest Insufficient Funds or Resources Shortage of Investment Instruments Shortage of Commercial Bill Lack of Organized Banking System Less number of Dealers

Composition of Indian Money Market

Organized Banking Sector

Unorganized Banking Sector

Sub Markets

RBI

1) Com Banks 2) Co-op Banks 3) Foreign Banks 4) Other Banks

Money Lenders

Indigenous Bankers

Call Money

Bill Market Commercial Papers Certificates of Deposits

1. 2.

Unorganized Sector Organized Sector

1.

2.
3. 4.

Money Lender Indigenous bankers Non-banking Finance Corporations Intermediaries like Nidhis, finance companies, etc

1 . Money Lenders

Professional, nonprofessional, gold smith No acceptance of deposits Their borrowers are poor farm labour, small farmers, etc. Intrest rate is high. Operations are informal , prompt and flexible.

Accept deposits, advance loans like banks Money lenders dont accept deposits Indigenous bankers are not regulated by RBI their rate of interest is high Heterogenous groups - Gujrat Shroffs, Multani Shroffs, Marwari Kayas, Chettiers

1.

Loan from finance companies

Spread over all parts of country Give loans to retailers, wholesalers Charge high interest upto30-40% Less formalities, hence quick operation than banks Chit funds are saving instruments Periodic subscriptions by members Chit funds operate in all states RBI has not control over them

2.

Chit Funds

Nidhis

Like mutual benefit funds Dealings combine to members Source of fund deposits from members Loans are given to members at reasonable rates More prevalent in south India

1.

Call Money Market (CMM)- Few hours to 14 days.

2.

Treasury / Bill Market (TBM)- 14 to 364 days Commercial Bills Market (CBM)upto 90 days

3.

Certificate Deposit (CD) Market 3 months to 1 year Commercial Paper (CP) Market Highly liquid and quite safe.

Repo and Reverse Repo 1 to 14 days

Deregulation of the Interest Rate Money Market Mutual Fund (MMMFs) Establishment of the DFI Liquidity Adjustment Facility (LAF) Electronic Transactions Establishment of the CCIL Development of New Market Instruments

Private sector banks to operate has provided much needed healthy competition in the money markets. Money market denotes inter-bank market Quantum of liquidity in the banking system RBI intervences in the money market through a host of interventions

India is an emerging economy largest democracy in the globe GDP India is fourth highest in the world in PPP terms.

Indian GDP ranks to No.12 in nominal term of world GDP after US, Japan, UK, Germany, China, France, Italy, Spain, Canada, Brazil and Russia. India is a large economy. It has GDP of $1100 B (2007) or RS.55000 B. Highest growth in stock market Fifth highest foreign currency reserve in the world