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MONEY MARKET ACTIVITIES

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Commercial Bills: Bills of exchange are negotiable instruments drawn by the seller of the goods or the buyer of the goods for the value of the goods delivered. These bills are called trade bills. These trade bills are called commercial bills when they are accepted by commercial banks. 

Call Money: Call/Notice money is an amount borrowed or lent for very short period. If the period of borrowing is more than 1 day and less than 14 days, it is called as notice money otherwise the amount is known as call money. 

No collateral security is required to cover these transactions. The call market enables the banks and institutions to even out their day to day deficits and surpluses of money. Commercial banks, Co – operative Banks and primary dealers are allowed to borrow and lend in this market for adjusting their cash reserve requirements. 

Treasury Bills: In the short – term, the lowest risk category instruments are the treasury bills. RBI issues these at a prefixed day and a fixed amount. These include 91 – day T – bills, 182 – day T – bills, and 364 – day T – bills.

Inter – Corporate Deposits: Apart from CPs, corporate have access to another market called the inter – corporate deposits (ICD) market. An ICD is an unsecured loan extended by one corporate to another. This market allows funds surplus corporate to lend to other corporate.

Certificates of Deposits: After treasury bills, the next lowest risk category investment option is the certificate of deposit (CD) issued by banks and Financial Institutions. Allowed in 1989, a CD is a negotiable promissory note, secure and short – term in nature i. e. up to one year. A CD is issued at a discount to the face value. The discount rate is negotiated between the issuer and the investor. 

Commercial Papers: CPs is negotiable short – term unsecured promissory notes with fixed maturities, issued by well rated companies generally sold on discount basis. Companies can issue CPs either directly to the investors or through banks/merchant banks (called dealers). These are basically instruments evidencing the liability of the issuer to pay the holder in due course of a fixed amount i. e. face value of the instrument, on the specified due date. These are issued for a fixed period of time at a discount to the face value and mature at par.

Term Money Market: Interbank market for deposits of maturity beyond 14 days and upto three months is referred to as the term money market.

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