Important reasons for the growth of merchant banks has been development activities throughout the country, exerting excess demand on the sources of fund for ever expanding industries and trade, thus leaving a widening gap unabridged between the supply and demand of invisible funds. All financial institutions had experienced constrain of resources to meet ever increasing demands for demands for funds frame corporate sector enterprises. In such circumstances corporate sector had the only alternative to avail of the capital market service for meeting their long term financial requirement through capital issue of equity shares and debentures. Growing demand for funds put pressure on capital market that enthused commercial banks, share brokers and financial consultancy firms to enter into the field of merchant banking and share the growing capital market.… Read the rest
Indian Financial System
Composition and Importance of Money Market
Composition of Money Market
The money market is not a single homogeneous market. It consists of a number of sub-markets which collectively constitute the money market. There should be competition within each sub-market as well as between different sub-markets. The following are the main sub-markets of a money market:
- Call Money Market.
- Commercial Bills Market or Discount Market.
- Acceptance Market.
- Treasury bill Market.
Indian money market was highly regulated and was characterized by limited number of participants. The limited variety and instruments were available. Interest rate on the instruments was under the regulation of Reserve Bank of India. The sincere efforts for developing the money market were made when the financial sector reforms were started by the government.… Read the rest
Money Market – Definition, Features and Instruments
As per the definition of Reserve Bank of India, money market is “a market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”.
Indian money market was highly regulated and was characterized by limited number of participants. The limited variety and instruments were available. Interest rate on the instruments was under the regulation of Reserve Bank of India. The sincere efforts for developing the money market were made when the financial sector reforms were started by the government.
Money markets are the markets for short-term, highly liquid debt securities.… Read the rest
Features and Objectives of Money Market
Money market is a market for short-term loan or financial assets. It as a market for the lending and borrowing of short term funds. As the name implies, it does not actually deals with near substitutes for money or near money like trade bills, promissory notes and government papers drawn for a short period not exceeding one year. These short term instruments can be converted into cash readily without any loss and at low transaction cost.
Money market is the centre for dealing mainly in short — term money assets. It meets the short-term requirements of borrowers and provides liquidity or cash to lenders.… Read the rest
Commercial Paper – Definition, Features and Advantages
What is a Commercial Paper?
A commercial paper is an unsecured promissory note issued with a fixed maturity by a company approved by RBI, negotiable by endorsement and delivery, issued in bearer form and issued at such discount on the face value as may be determent by the issuing company.
Features of Commercial Paper- Commercial paper is a short-term money market instrument comprising usince promissory note with a fixed maturity.
- It is a certificate evidencing an unsecured corporate debt of short term maturity.
- Commercial paper is issued at a discount to face value basis but it can be issued in interest bearing form.
Commercial Bills Market or Discount Market
A commercial bill is one which arises out of a genuine trade transaction, i.e. credit transaction. As soon as goods are sold on credit, the seller draws a bill on the buyer for the amount due. The buyer accepts it immediately agreeing to pay amount mentioned therein after a certain specified date. Thus, a bill of exchange contains a written order from the creditor to the debtor, to pay a certain sum, to a certain person, after a creation period. A bill of exchange is a ‘self-liquidating’ paper and negotiable/; it is drawn always for a short period ranging between 3 months and 6 months.… Read the rest