{"id":7663,"date":"2024-05-01T07:57:41","date_gmt":"2024-05-01T07:57:41","guid":{"rendered":"https:\/\/www.nextias.com\/blog\/?p=7663"},"modified":"2024-05-01T07:57:43","modified_gmt":"2024-05-01T07:57:43","slug":"money-market","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/blog\/money-market\/","title":{"rendered":"Money Market: Meaning, Structure, Instruments, Roles &amp; More"},"content":{"rendered":"\n<p><em><strong>The Money Market, <\/strong>as a crucial segment of the financial market, is integral for managing liquidity and funding short-term obligations for banks, governments, and corporations. Understanding its dynamics is essential for developing a grasp of the Indian Financial System. This <strong>article of NEXT IAS<\/strong> aims to study in detail the Money Market, including its meaning, structure, major instruments, roles, and other related concepts.<\/em><\/p><div id=\"ez-toc-container\" class=\"ez-toc-v2_0_56_1 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#What_is_Money_Market\" title=\"What is Money Market?\">What is Money Market?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Structure_of_Indian_Money_Market\" title=\"Structure of Indian Money Market\">Structure of Indian Money Market<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Organized_Money_Market\" title=\"Organized Money Market\">Organized Money Market<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Unorganized_Money_Market\" title=\"Unorganized Money Market\">Unorganized Money Market<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Major_Instruments_of_Money_Market\" title=\"Major Instruments of Money Market\">Major Instruments of Money Market<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Call_Money_or_Money_at_Call\" title=\"Call Money or Money at Call\">Call Money or Money at Call<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Call_Market_or_Overnight_Market\" title=\"Call Market or Overnight Market\">Call Market or Overnight Market<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Short_Notice_Market\" title=\"Short Notice Market\">Short Notice Market<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Treasury_Bills_T-Bills\" title=\"Treasury Bills (T-Bills)\">Treasury Bills (T-Bills)<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Features_of_Treasury_Bills_T-Bills\" title=\"Features of Treasury Bills (T-Bills)\">Features of Treasury Bills (T-Bills)<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Cash_Management_Bills_CMBs\" title=\"Cash Management Bills (CMBs)\">Cash Management Bills (CMBs)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Ways_and_Means_Advances_WMAs\" title=\"Ways and Means Advances (WMAs)\">Ways and Means Advances (WMAs)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Certificate_of_Deposit_CD\" title=\"Certificate of Deposit (CD)\">Certificate of Deposit (CD)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Commercial_Paper_CP\" title=\"Commercial Paper (CP)\">Commercial Paper (CP)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Commercial_Bill_CB_or_Trade_Bill\" title=\"Commercial Bill (CB) or Trade Bill\">Commercial Bill (CB) or Trade Bill<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Importance_of_Money_Market\" title=\"Importance of Money Market\">Importance of Money Market<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Related_Concepts\" title=\"Related Concepts\">Related Concepts<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Promissory_Note\" title=\"Promissory Note\">Promissory Note<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Government_Securities_G-Secs\" title=\"Government Securities (G-Secs)\">Government Securities (G-Secs)<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Treasure_Bills_T-Bills\" title=\"Treasure Bills (T-Bills)\">Treasure Bills (T-Bills)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/www.nextias.com\/blog\/money-market\/#Government_Bonds_or_Dated_Government_Securities_or_Gilt-Edged_Securities\" title=\"Government Bonds or Dated Government Securities or Gilt-Edged Securities\">Government Bonds or Dated Government Securities or Gilt-Edged Securities<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n\n\n\n\n<figure class=\"wp-block-image size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"600\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/1.png\" alt=\"Money Market\" class=\"wp-image-7671\" style=\"width:574px;height:auto\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/1.png 960w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/1-413x258.png 413w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/1-768x480.png 768w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/1-696x435.png 696w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/1-672x420.png 672w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/1-150x94.png 150w\" sizes=\"auto, (max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-ac35aea57af712ed46c8d5046c1969b6\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"What_is_Money_Market\"><\/span><strong>What is Money Market?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Money Market refers to that part of the broader Financial Market in which highly liquid and <strong>short-term financial assets with maturity upto 1 year <\/strong>are traded.\n<ul class=\"wp-block-list\">\n<li>Thus, it <strong>caters to the short-term borrowing needs<\/strong> of working capital.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Because of the short maturity period, it <strong>offers high liquidity<\/strong> of securities, and hence <strong>money market investments are also called cash investments.<\/strong><\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#ebecf0\"><tbody><tr><td>&#8211; <strong>Financial Market<\/strong> is a broad term, referring to any center or arrangement where buyers and sellers participate in the trade of financial claims such as equities, bonds, currencies, and derivatives.<br>&#8211; The Financial Market is classified into<strong> two categories.<\/strong><br>a. <strong>Money Market<\/strong>&#8211; Market for trading <strong>short-term financial assets with a maturity of upto 1 year<\/strong><br>b. <strong>Capital Market<\/strong> &#8211; Market for borrowing and lending of <strong>medium and long-term funds, above 1 year.<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-3ace2bb82ffeea0c721a092a2bb7f6ec\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Structure_of_Indian_Money_Market\"><\/span><strong>Structure of Indian Money Market<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Broadly speaking, the money market in India comprises two sectors.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"487\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2-1024x487.png\" alt=\"structure of indian money market\" class=\"wp-image-7672\" style=\"width:608px;height:auto\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2-1024x487.png 1024w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2-460x219.png 460w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2-768x365.png 768w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2-1536x730.png 1536w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2-696x331.png 696w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2-1068x507.png 1068w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2-884x420.png 884w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2-150x71.png 150w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/blog\/uploads\/2024\/05\/2.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-678ca1a545a8640745c396cfc9dc9ee2\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Organized_Money_Market\"><\/span><strong>Organized Money Market<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>This sector of the money market in India is characterized by <strong>registration, approval, <\/strong>and <strong>license<\/strong> from market regulators.<\/li>\n\n\n\n<li>It is called organized because it is systematically coordinated by the RBI and other market regulators.<\/li>\n\n\n\n<li><strong>Major participants<\/strong> in the Organized Money Market in India include &#8211; the <strong><a href=\"https:\/\/www.nextias.com\/blog\/reserve-bank-of-india-rbi\/\">RBI<\/a>, <a href=\"https:\/\/www.nextias.com\/blog\/banking-system\/\">Banks<\/a>, NBFCs, Mutual Funds, Insurance Companies,<\/strong> etc.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-8f2c6e7e16df510601141686b865d1f6\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Unorganized_Money_Market\"><\/span><strong>Unorganized Money Market<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>This sector of the money market in India refers to the one that is <strong>not registered <\/strong>and <strong>not regulated.<\/strong><\/li>\n\n\n\n<li>It is called unorganized because it is not systematically coordinated by the RBI or any other market regulator.<\/li>\n\n\n\n<li><strong>Major participants<\/strong> in the Unorganized Money Market in India include &#8211; <strong>Local Moneylenders, Chit Funds,<\/strong> etc.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-f1ac55e8a335c356f596940dd8153a64\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Major_Instruments_of_Money_Market\"><\/span><strong>Major Instruments of Money Market<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Various types of Money Market Instruments are used in India, each catering to specific needs and participants. Some of the major instruments of Money Market in India are discussed in detail in the sections that follow.<\/p>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-62b6d3f704831dd1e1095d095731fdef\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Call_Money_or_Money_at_Call\"><\/span><strong>Call Money or Money at Call<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Call Money refers to <strong>inter-bank borrowing and lending for a very short period,<\/strong> typically overnight to upto 14 days.<\/li>\n\n\n\n<li>The Call Money or Money at Call enables banks and financial institutions to manage their short-term liquidity requirements.<\/li>\n\n\n\n<li>The rate at which money is borrowed in these markets is called the <strong>Call Money Rate.<\/strong>\n<ul class=\"wp-block-list\">\n<li>The Call Money Rate <strong>keeps changing on an hourly basis,<\/strong> depending on the demand and supply.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Call Money Market has <strong>2 segments:<\/strong><\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Call_Market_or_Overnight_Market\"><\/span><strong>Call Market or Overnight Market<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>It refers to the market for <strong>borrowing and lending<\/strong> of money between banks <strong>for 1 day.<\/strong><\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Short_Notice_Market\"><\/span><strong>Short Notice Market<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>It refers to the market for <strong>borrowing and lending<\/strong> of money between banks <strong>for upto 14 days.<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-abedee13aee6f9dd66d96fabd5b576da\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Treasury_Bills_T-Bills\"><\/span><strong>Treasury Bills (T-Bills)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Treasury Bills or T-Bills refer to <strong>short-term securities issued by the RBI on behalf of the Central Government.<\/strong><\/li>\n\n\n\n<li>They act as short-term fundraising tools for the government.<\/li>\n\n\n\n<li>Treasury Bills (T-Bills) are <strong>one of the two types of Government Securities (G-Secs).<\/strong>\n<ul class=\"wp-block-list\">\n<li>One<strong> other type of Government Securities (G-Secs)<\/strong> is <strong>Government Bonds, <\/strong>which have a<strong> maturity period of more than 1 year<\/strong> and hence are <strong>Capital Market instruments.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Features_of_Treasury_Bills_T-Bills\"><\/span><strong>Features of Treasury Bills (T-Bills)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Treasury bills are <strong>issued at a discount to the original value <\/strong>and the buyer gets the original value upon maturity.\n<ul class=\"wp-block-list\">\n<li>For example, a Rs 100 treasury bill can be availed of at Rs 95, but the buyer is paid Rs 100 on the maturity date. This is called <strong>redemption at par or face value.<\/strong><\/li>\n\n\n\n<li>Thus, they are <strong>non-interest bearing <\/strong>i.e. 0 coupon or 0 interest, and hence are <strong>also called 0 coupon bonds.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Being backed by the Government, these bills are considered <strong>risk-free and are highly liquid.<\/strong><\/li>\n\n\n\n<li>These bills are<strong> issued only by the Central Government <\/strong>(through the RBI).\n<ul class=\"wp-block-list\">\n<li>The <strong>State Governments do not issue T-Bills.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Instead of direct selling,<\/strong> T-Bills are <strong>auctioned in the market,<\/strong> wherein each buyers submit their bids and the bill is sold to the buyer willing to pay the highest price.\n<ul class=\"wp-block-list\">\n<li>The option of bidding <strong>ensures the highest revenue<\/strong> for the government as well as <strong>transparency <\/strong>in the issuing process.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>T-Bills are available for a <strong>minimum amount of \u20b9 25,000 or in multiples of \u20b9 25,000.<\/strong><\/li>\n\n\n\n<li>As of now, there are <strong>3 types<\/strong> of T-Bills auctioned by the RBI:\n<ul class=\"wp-block-list\">\n<li><strong>91-day T-Bills<\/strong> &#8211; Have a maturity period of 91 days.<\/li>\n\n\n\n<li><strong>182-day T-Bills<\/strong> &#8211; Have a maturity period of 182 days.<\/li>\n\n\n\n<li><strong>364-day T-Bills<\/strong> &#8211; Have a maturity period of 364 days.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>T-Bills can be <strong>used by the Banks for:<\/strong>\n<ul class=\"wp-block-list\">\n<li>Keeping as part of their <strong>SLR requirements.<\/strong><\/li>\n\n\n\n<li>Providing as collateral to the RBI for getting <strong>loans under Repo.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-bb670fef16c31090c65b9b84c096847d\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Cash_Management_Bills_CMBs\"><\/span><strong>Cash Management Bills (CMBs)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Similar to T-Bills<\/strong>, CMBs are also short-term securities sold by the RBI on behalf of the Central Government, <strong>but <\/strong>with a <strong>maturity period of less than 91 days.<\/strong><\/li>\n\n\n\n<li>It is also aimed at meeting the short-term cash flow mismatches of the Government of India.<\/li>\n\n\n\n<li>Similar to T-Bills, CMBs are also <strong>issued at a discount<\/strong> to the face value through <strong>auctions by the RBI.<\/strong><\/li>\n\n\n\n<li>Banks are allowed to keep CMBs to <strong>meet their SLR requirements.<\/strong><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-202c8b6a3bd08e3ef17cba1b20f9e7e1\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Ways_and_Means_Advances_WMAs\"><\/span><strong>Ways and Means Advances (WMAs)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Way and Means Advances (WMAs) are <strong>temporary loans or overdraft facilities extended by the RBI to the Governments.<\/strong><\/li>\n\n\n\n<li>This facility is <strong>available to both Central Government<\/strong> as well as <strong>State Governments.<\/strong><\/li>\n\n\n\n<li>WMA was introduced as per an agreement between the RBI and the Government of India under Section 17(5) of the RBI Act.<\/li>\n\n\n\n<li>They <strong>replaced the Ad-hoc T-Bills,<\/strong> which were earlier used by the Government to meet short-term expenditure for a particular purpose.<\/li>\n\n\n\n<li>WMAs are not considered as a source of finance for the government. Rather, they are aimed to bridge the time interval of mismatch between the government\u2019s expenditures and expected receipts.<\/li>\n\n\n\n<li>If the government avails immediate cash from the RBI under<strong> normal WMA, it has to return the amount within 90 days.<\/strong> In case the WMA <strong>repayment surpasses 90 days,<\/strong> it is <strong>treated as an overdraft.<\/strong><\/li>\n\n\n\n<li>For the <strong>normal WMA<\/strong>, the rate of interest charged by the RBI is the Repo Rate. For the <strong>overdraft<\/strong>, the <strong>rate of interest<\/strong> is <strong>(Repo Rate + 2%).<\/strong><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-c87823353679c74fc7062cdaa147ad59\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Certificate_of_Deposit_CD\"><\/span><strong>Certificate of Deposit (CD)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Certificate of Deposit (CD) is a <strong>security issued by <\/strong>the <strong>Scheduled Commercial Banks (SCBs) <\/strong>and some other <strong>Financial Institutions (FIs)<\/strong> that have been permitted by the RBI<strong> to raise short-term funds.<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Note: Cooperative Banks <\/strong>and <strong>Regional Rural Banks (RRBs)<\/strong> are <strong>not allowed to issue Certificates of Deposit (CDs).<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Certificates of Deposit (CDs) should be <strong>issued in multiples of \u20b91 lakh, <\/strong>with <strong>a minimum amount <\/strong>of <strong>\u20b91 lakh.<\/strong><\/li>\n\n\n\n<li>They are <strong>issued at a discount on face value and are redeemed at par<\/strong> or face value.<\/li>\n\n\n\n<li>Their <strong>maturity period<\/strong> is, usually, <strong>more than 7 days and less than 1 year.<\/strong><\/li>\n\n\n\n<li>Withdrawal of a CD before the maturity date results in a penalty.<\/li>\n\n\n\n<li>Banks are not allowed to provide loans against the CDs.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-909dcf22883cceafa2efbe1190c199be\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Commercial_Paper_CP\"><\/span><strong>Commercial Paper (CP)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Commercial Paper (CP) is a type of<strong> unsecured, short-term debt instrument issued by large Corporations, Primary Dealers, and Financial Institutions (FIs).<\/strong><\/li>\n\n\n\n<li>The eligible institutions may issue Commercial Papers (CPs) <strong>to finance their short-term needs, <\/strong>such as inventory management, meeting payroll expenses, funding new projects, etc.<\/li>\n\n\n\n<li>A Commercial Paper is <strong>issued as an unsecured promissory note <\/strong>and is<strong> placed privately.<\/strong><\/li>\n\n\n\n<li>They should be <strong>issued in multiples of \u20b95 lakh,<\/strong> with a <strong>minimum amount <\/strong>of <strong>\u20b95 lakh.<\/strong><\/li>\n\n\n\n<li>Their <strong>maturity period<\/strong> is a <strong>minimum of 7 days <\/strong>and a <strong>maximum of upto 1 year.<\/strong><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-e883f32af0fbc843d4b87951836c1cf2\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Commercial_Bill_CB_or_Trade_Bill\"><\/span><strong>Commercial Bill (CB) or Trade Bill<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Commercial Bill (CB) is a <strong>negotiable instrument drawn by the seller or buyer of goods\/services <\/strong>for the value of goods\/services delivered.<\/li>\n\n\n\n<li>Commercial Bills (CBs) act as a way for a seller (drawer) to extend credit to a buyer (drawee) for goods or services purchased.<\/li>\n\n\n\n<li><strong>When <\/strong>a Commercial Bill gets <strong>accepted by a Commercial Bank, it is called as Trade Bill.<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Note: A Commercial Bill or Trade Bill is discounted by the Commercial Bank first. The Bank, then, gets it <\/strong>re-discounted by the RBI.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-9e3011abc27aadd24d7227519f05efa6\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Importance_of_Money_Market\"><\/span><strong>Importance of Money Market<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It provides a mechanism for managing liquidity. Banks and other financial institutions use various instruments of money market to balance their short-term surplus and deficits, ensuring cash availability is aligned with their operational needs.<\/li>\n\n\n\n<li>It enables the growth of businesses and industries by allowing them to finance their short-term capital requirements and expenses without dipping into long-term funding resources, which may be costlier and less flexible.<\/li>\n\n\n\n<li>It plays a crucial role in financing both internal as well as international trade.<\/li>\n\n\n\n<li>It reflects short-term interest rates, offering insights into the broader economy&#8217;s health.<\/li>\n\n\n\n<li>Interest rates in the money market serve as benchmark rates for the economy. The rates for various instruments in this market form the basis for pricing loans, mortgages, and other types of credit in broader financial markets.<\/li>\n<\/ul>\n\n\n\n<p>In conclusion, the Money Market plays a pivotal role, serving as a mechanism for the efficient management of liquidity and short-term funding needs for individuals, businesses, and governments. Its critical role in ensuring financial stability means that it is crucial for the smooth functioning of the financial system.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-202e249a66f13d70225aba21aa22935c\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Related_Concepts\"><\/span><strong>Related Concepts<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-e94d318fd78f133fd327ced8d04cc21f\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Promissory_Note\"><\/span><strong>Promissory Note<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A Promissory Note is a legal document that serves as a <strong>written promise by<\/strong> the issuer <strong>to repay a certain sum of money<\/strong> to another party (the payee) under specific terms and conditions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-6c6ea7ff4bcceb20e2cff60e430aba2a\" style=\"color:#ff6a00\"><span class=\"ez-toc-section\" id=\"Government_Securities_G-Secs\"><\/span><strong>Government Securities (G-Secs)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A Government Security or G-Sec refers to a <strong>tradable instrument issued<\/strong> by the <strong>Central Government or the State Government.<\/strong><\/li>\n\n\n\n<li>Being backed by the government, these securities are considered <strong>risk-free.<\/strong><\/li>\n\n\n\n<li>G-Secs are, mainly, of<strong> 2 types.<\/strong><\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Treasure_Bills_T-Bills\"><\/span><strong>Treasure Bills (T-Bills)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>These are <strong>short-term<\/strong> Government Securities (G-Secs), with a <strong>maturity period of less than 1 year.<\/strong>\n<ul class=\"wp-block-list\">\n<li>Thus, they are a <strong>Money Market instrument<\/strong> and not a Capital Market instrument.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>In India, <strong>only the Central Government can issue<\/strong> Treasury Bills (T-Bills).\n<ul class=\"wp-block-list\">\n<li>State Governments are not empowered to issue Treasury Bills (T-Bills).<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Government_Bonds_or_Dated_Government_Securities_or_Gilt-Edged_Securities\"><\/span><strong>Government Bonds or Dated Government Securities or Gilt-Edged Securities<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>These are<strong> long-term<\/strong> Government Securities (G-Secs), with a <strong>maturity of more than 1 year.<\/strong>\n<ul class=\"wp-block-list\">\n<li>Thus, they are a <strong>Capital Market instrument <\/strong>and not a Money Market instrument.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>In India, <strong>both <\/strong>the <strong>Central Government<\/strong> and the <strong>State Governments can issue<\/strong> Government Bonds.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The Money Market, as a crucial segment of the financial market, is integral for managing liquidity and funding short-term obligations for banks, governments, and corporations.<\/p>\n","protected":false},"author":9,"featured_media":7665,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[62],"tags":[72],"class_list":["post-7663","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-indian-economy","tag-gs-3"],"_links":{"self":[{"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/posts\/7663","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/comments?post=7663"}],"version-history":[{"count":6,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/posts\/7663\/revisions"}],"predecessor-version":[{"id":7675,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/posts\/7663\/revisions\/7675"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/media\/7665"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/media?parent=7663"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/categories?post=7663"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/tags?post=7663"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}