Money Market Instruments

Certificate Of Deposit

Certificate of Deposit (CD) is a money market instrument. CDs can be issued by scheduled commercial banks and select All-India Financial Institutions (FIs) that have been permitted by RBI to raise short-term resources. Minimum amount of a CD should be Rs.1 lakh, i.e., the minimum deposit that could be accepted from a single

subscriber should not be less than Rs.1 lakh, and in multiples of Rs. 1 lakh thereafter.

The maturity period of CDs issued by banks should not be less than 7 days and not more than one year, from the date of issue. CDs may be issued at a discount on face value.

In this a person invest his money in COD and after the end of maturity period he receives money along with interest.

Bankers Acceptance

Bankers Acceptance is also a money market instrument to meet short term liquidity requirement .In this company provides bank guarantee to seller to pay amount of good purchased at agreed future date . In case buyer failed to pay on agreed date , seller can

invoke bank guarantee . It is usually used to finance export and import.

Repurchase Agreement

Repurchase agreement is also know as Repo .It is money market instrument .In this one party sell his asset usually government sec urities to other party and agreed to buy this asset on future agreed date . The seller pays an interest rate, called the repo rate, when buying back the securities. This is like a short term loan given by buyer of security to seller of security to meet immediate financial needs.

Major Players in Money Market:-

1. S.E.B.I

2. Central and State Government

3. Financial Institutions like L.I.C.

4. Financial intermediaries like stock brokers

5. Individuals

6. Corporate houses

7. Insurance companies