Q. 15.0( 1 Vote )

Explain the various Money Market Instruments.

Answer :

The various money market instruments are listed below –

Treasury Bill - It is also called zero coupon Bond and is used by Government of India for short term borrowings. It is issued by RBI on behalf of Central government to fulfil the short term requirement of funds of Central Government. The treasury bills are issued at discount and repaid at par. The maturity period of treasury bill is maximum of 364 days that is less than a year.


Commercial Paper - It is a short term unsecured promissory note having the maturity period less than a year. Its minimum maturity period is of 15 days. It is issued by big and creditworthy companies to meet their short term financial requirements. It is issued at discount and redeemed at par


Call Money - It is a short term instrument which is used for inter bank transactions having maturity period from one day to 15 days. Call money is the facility under which the banks borrow money from each other to maintain the cash reserve ratio as prescribed by the RBI.


Certificate of Deposit - These are the short-term instruments issued by Commercial Banks and Financial Institutions to individuals, corporations, and companies when they have tight liquidity position due to slow growth of bank deposits and high demand for loans and credit. These instruments are negotiable and unsecured.


Commercial Bills - It is short term negotiable and self liquidity instrument. When goods are sold on credit the seller draws bill of exchange which is accepted by the buyer and is called trade bill. It is an order to pay a certain sum of money on a specified date. The seller can retain the bill till maturity date or can get it discounted from the bank. When the bill is discounted from the bank it becomes a commercial bill.


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