Principal Money Market Instruments

Principal Money Market Instruments

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The various types of money market instruments are as follows:

1. Note of Promissory - One of the earliest types of bills is a promissory note. It is a financial instrument in which one party makes a written promise to pay another party a specific amount of money by demand or at a specified future date, even though payment is due after 90 days with three days of grace. Promissory notes, on the other hand, are rarely used in business, with the exception of the United States.

2. Commercial bills or bills of exchange - The bills of exchange are like the promissory note; Additionally, it is drawn by the creditor and accepted by the debater's bank. The creditor can negotiate a discount on the bill of exchange with a broker or bank. In addition, there is a foreign bill of exchange that must be paid by the acceptance date. However, for the internal bills of exchange, the remaining procedure is the same.

3. Treasury Bills (T-Bills) - The Treasury bills are one of the safest money market instruments available and are issued by the Central Government. In addition, there is no risk involved, so the returns are not appealing. Additionally, they are distributed by primary and secondary markets and have a variety of maturity periods, such as one year, six months, or three months. They are issued by the central government at a price that is lower than their face value. The buyer's interest is essentially the difference between the instrument's maturity value and the bill's buying price, which is determined through auctioned bidding. Currently, the Government of India issues three types of Treasury bills through auctions: 91-day, 182-day, and 364-day Treasury bills.

4. There are call and notice money products on the market - In the Notice Market, the funds are borrowed and lent for up to 14 days without any collateral security, whereas in Call Money, the funds are borrowed and lent for one day. In this market, commercial and cooperative banks borrow and lend money. However, only mutual funds and all-Indian financial institutions participate as lenders of funds.

5. Inter-bank Term Market - The Indian cooperative and commercial banks that borrow and lend money for more than 14 days and up to 90 days use the inter-bank term market. This is carried out at market-determined rates without the use of any collateral.

6. Commercial Papers (CPs) - Commercial papers are similar to an unsecured short-term promissory note that top-rated businesses issue in order to raise capital to meet market demands directly. They typically have a predetermined period of maturity, which can last anywhere from one day to 270 days. They provide better returns than treasury bills. When compared, they are automatically less secure. Additionally, commercial papers are actively traded in the secondary market.

7. The Certificate of Deposit (CD) - serves as a receipt for money that is deposited with a bank or other financial institution. There are two ways that the Certificate of Deposit differs from the receipt for a Fixed Deposit. i. Certificates of Deposit are only given out to large sums of money. ii. The Certificate of Deposit can be freely traded. Since their low risk and high interest rates, Certificate of Investments have become the most popular investment option for businesses, according to the Reserve Bank of India (RBI)'s first announcement in 1989. Similar to Treasury bills, CDs are also issued at a discount and last anywhere from seven days to one year. The Authentication of Store gave by Banks range from 90 days, a half year and a year.

Note: Individuals (with the exception of minors), businesses, corporations, funds, non-resident Indians, and others can receive CDs.

8. A Banker's Acceptance (BA) - is a document that guarantees future payment and is issued by a commercial bank. Additionally, it is utilized in money market funds and will specify the repayment's specifics, including the due date, amount, and individual information. The maturity periods of BAs range from 30 days to 180 days.

9. Repurchase Arrangements (Repo) - Repo's are otherwise called Turn around Repo or as Repo. They are short-term loans that are agreed upon by buyers and sellers for the purpose of repurchasing and selling. However, RBI-approved parties may engage in these transactions.