Financial Markets
Financial Market in India primarily consists of -
a) Money Market
b) Debt Market
C) Forex Market
D) Capital Market
Money Market- Meets the short term requirement of borrower and also provides liquidity or cash to lenders.
Major Players in Indian Money market are-
- Reserve Bank of India (RBI)
- SBI DFHI Ltd (Amalgamation of Discount & Finance House in India and SBI Gilts in 2004)
- Commercial Banks, Co-operative Banks and Primary Dealers are allowed to borrow and lend.
- Specified All-India Financial Institutions, Mutual Funds, and certain specified entities are allowed to access to Call/Notice money market only as lenders
- Individuals, firms, companies, corporate bodies, trusts and institutions can purchase the treasury bills, CPs and CDs.
Some of the major products in money markets are-
1) Certificate of Deposits
2) Commercial Paper
3) Tresury Bills
4) Bills of exchange
5) Money Market mutual fund
6) Promissory notes
Certificate of Deposit
- CDs are negotiable money market instrument issued in demat form or as a Usance Promissory Notes.
- CDs issued by banks should not have the maturity less than seven days and not more than one year. Financial Institutions are allowed to issue CDs for a period between 1 year and up to 3 years.
- CDs are like bank term deposits but unlike traditional time deposits these are freely negotiable and are often referred to as Negotiable Certificates of Deposit.
- CDs normally give a higher return than Bank term deposit.
- CDs are rated by approved rating agencies (e.g. CARE, ICRA, CRISIL, and FITCH) which considerably enhance their tradability in the secondary market, depending upon demand. SBI DFHI is an active player in secondary market of CDs.
Features of CD - All scheduled banks (except RRBs and Co-operative banks) are eligible to issue CDs.
- They can be issued to individuals, corporations, trusts, funds and associations.
- NRIs can also subscribe to CDs, but on non-repatriable basis only. In secondary market such CDs cannot be endorsed to another NRI.
- They are issued at a discount rate freely determined by the issuer and the market/investors.
- CDs issued in physical form are freely transferable by endorsement and delivery. Procedure of transfer of dematted CDs is similar to that of any other demat securities.
- For CDs there is no lock-in period
- CDs are issued in denominations of Rs.1 Lac and in the multiples of Rs. 1 Lac thereafter.
- Discount/Coupon rate of CD is determined by the issuing bank/FI
- Loans cannot be granted against CDs and Banks/FIs cannot buy back their own CDs before maturity
- SBI DFHI Limited, participates in both the Primary and Secondary Market for CDs.
- Investors can buy CDs through SBI DFHI Invest Plus scheme of SBI DFHI Ltd.
Questions and Answers
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Any mechanism organized for trading financial assets or liabilities is termed financial market. It is a market in which financial assets and liabilities are traded (Richard & Bill, 2006). Financial assets in this context include all forms of securities ranging from common stocks to derivatives. Efficiency as it is commonly used can be seen as" the ability to achieve desired result without wasted efforts or energy" (Encarta dictionary, 2009).
Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products. Financial system is An information system, comprised of one or more applications, that is used for any of the following: collecting, processing, maintaining, transmitting, and reporting data about financial events supporting financial planning or budgeting activities; accumulating and reporting cost information.
The economic development of the country is reflected by corporate sector, government institutions, banks etc. The financial system is concerned with money, credit and finance. In keeping with their importance, the financial system of any country constitutes the activity of trading in corporate securities, money. Indian financial system consists of financial markets, financial instruments, financial intermediaries or financial institutions, financial services.
What is in your wallet? We all have heard this commercial repeatedly. I have a better question that has more of an effect on your personal wealth. What is in your bank’s money market or your mutual funds cash equivalent fund?
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