{"id":63288,"date":"2025-10-01T18:21:43","date_gmt":"2025-10-01T12:51:43","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=63288"},"modified":"2025-10-04T15:55:50","modified_gmt":"2025-10-04T10:25:50","slug":"money-market","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/money-market\/","title":{"rendered":"Money Market, Structure, Participants, Instruments"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The Money Market is an important financial market that plays an important role in regulating liquidity and meeting short-term financing needs of banks, governments and corporate entities. Having an understanding about the Money Market can help you get clarity for the functioning of the Indian Financial System. In this article, we are going to cover the Money Market, its definitions, structure, major instruments and significance.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Money Market<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The Money Market is a part of the Financial Market where short-term financial instruments are traded. These Money Market instruments have a maturity period of up to one year and are highly\u00a0 liquid in nature. Since the maturity period is short, securities can be quickly converted into cash. This is why these investments are called cash investments.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <a href=\"https:\/\/vajiramandravi.com\/current-affairs\/financial-market\/#:~:text=A%20financial%20market%20is%20a,bonds%2C%20currencies%2C%20and%20derivatives.&amp;text=%2B-,Ans.,Market%2C%20and%20Foreign%20Exchange%20Market.\\\" target=\"_blank\"><strong>financial Market<\/strong><\/a> includes all platforms where buying and selling of financial instruments such as shares, currencies and derivatives take place.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Financial Market is divided into two main categories:<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Money Market: Market for short-term instruments with maturity up to 1 year<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/capital-market\/\" target=\"_blank\"><strong>Capital Market<\/strong><\/a>: Market for medium and long-term instruments with maturity of more than 1 year.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400;\">Money Market Structure\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The Money Market is divided into two important sectors:\u00a0<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Organised Money Market<\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The organised money market sector is regulated, licensed and systematically supervised by market regulators like the RBI.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The sector works in a structured and coordinated manner under RBI\u2019s control.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Money Market main participants include RBI, commercial banks, non-banking financial companies, mutual funds and insurance companies.\u00a0<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">Unorganised Money Market\u00a0<\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The unorganised money market sector is outside the purview of registration or regulation by the RBI.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The sector is called unorganised due to the lack of a formal structure and coordination.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The main participants of the money market includes local moneylenders, chit funds, indigenous bankers etc.\u00a0<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400;\">Money Market Major Instruments\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The Money Market has different types of financial instruments that help meet the needs of lenders and borrowers. These Money Market instruments include:\u00a0<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Call Money<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Call Money is a short-term borrowing and lending among banks and financial institutions for a very small period, ranging from overnight to 14 days.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It helps banks manage sudden liquidity shortages.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The interest rate charged in call money market is called the Call Money Rate, which fluctuates frequently, even hourly, depending on demand and supply.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Call Money Market has two segments:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Call Market (Overnight Market): Borrowing and lending for one day.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Short Notice Market: Borrowing and lending for up to 14 days.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">Treasury Bills (T-Bills)<\/span><\/h3>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Treasury Bills are short-term securities issued by the RBI on behalf of the Central Government to raise funds.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">They are part of Government Securities (G-Secs).<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">T-Bills: T-Bills have a maturity of less than one year and hence is a money market instrument.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Government Bonds: Government Bonds have a maturity of more than one year and hence is a capital market instrument.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\"><b>Treasury Bills Features:\u00a0<\/b><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Issued at a discount and redeemed at face value.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"> Example: A \u20b9100 bill may be issued at \u20b995, but redeemed at \u20b9100 at maturity.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">They are zero-interest or zero-coupon securities.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">They are risk-free and highly liquid, being backed by the Government.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Only the Central Government issues them; States cannot issue T-Bills.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Issued via auction to ensure transparency and maximize government revenue.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Available in multiples of \u20b925,000.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\"><b>Treasury Bills Types:\u00a0<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The treasury bills are of three types:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">91-day T-Bill<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">182-day T-Bill<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">364-day T-Bill<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\"><b>Treasury Bills uses for Banks:<\/b><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The treasury bills can help maintain Statutory Liquidity Ratio (SLR).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">As collateral with RBI to borrow funds under Repo operations.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">Cash Management Bills (CMBs)<\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Cash Management Bills are similar to treasury bills but with maturity of less than 91 days.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These are issued to cover short-term mismatches in government cash flow.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">CMS bills are Issued at a discount and redeemed at face value through RBI auctions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Banks can also use them to meet SLR requirements.<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">Ways and Means Advances (WMAs)<\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">WMAs are temporary loans provided by the RBI to both Central and State Governments.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">They were introduced under Section 17(5) of the RBI Act to replace the earlier Ad-hoc T-Bills.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">They are not a permanent source of government finance but are used to cover short-term mismatches between income and expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Repayment: If repaid within 90 days the debt is treated as Ways and Means Advances and if repayment exceeds 90 days it is treated as overdraft.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Interest charged on ways and means advances is that of repo rate and the overdraft charges repo rate +2%.\u00a0<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">Certificate of Deposit (CD)<\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Certificates of Deposit are issued by Scheduled Commercial Banks and select Financial Institutions permitted by the RBI.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Cooperative Banks and Regional Rural Banks (RRBs) cannot issue Certificate of Deposits.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Minimum amount that can be issued is \u20b91 lakh, issued in multiples of \u20b91 lakh.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">It is issued at discount and redeemed at par.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The maturity period is more than 7 days, up to 1 year.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Premature withdrawal of the deposits leads to penalty.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">No loans can be taken against CDs.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">Commercial Paper (CP)<\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Commercial Papers are unsecured, short-term debt instruments issued by large corporations, financial institutions, and primary dealers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These are issued as promissory notes to finance short-term needs like inventory and working capital.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These are issued privately and not traded on exchanges.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Denomination: Minimum \u20b95 lakh, issued in multiples of \u20b95 lakh.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Maturity: Minimum 7 days, maximum up to 1 year.<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">Commercial Bill (CB) or Trade Bill<\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A commercial bill is a negotiable instrument drawn by the seller or buyer for goods or services supplied.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The bill helps sellers extend credit to buyers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">When accepted by a commercial bank, it becomes a Trade Bill.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Commercial Bills are first discounted by banks and then re-discounted with the RBI.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400;\">Money Market Importance<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The money market plays an important\u00a0 role in the financial system because:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It helps banks and financial institutions manage liquidity by balancing short-term surpluses and deficits.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It provides industries and businesses access to short-term funds without using long-term and expensive resources.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It supports both domestic and international trade financing.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It shows the prevailing short-term interest rates, offering insight into the state of the economy.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Interest rates in the money market serve as benchmarks for pricing loans, mortgages, and credit in broader markets.<\/span><\/li>\n<\/ul>\n<table style=\"border-collapse: collapse; width: 83.9666%; height: 75px;\">\n<tbody>\n<tr style=\"height: 25px;\">\n<td class=\"tb-color\" style=\"width: 85.004%; text-align: center; 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system.<\/p>\n","protected":false},"author":11,"featured_media":63289,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[786],"tags":[2657],"class_list":{"0":"post-63288","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-general-studies","8":"tag-money-market","9":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/63288","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=63288"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/63288\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/63289"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=63288"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=63288"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=63288"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}