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.
