CBSE Class 12 - Business Studies - Instruments of Money Market (#cbsenotes)(#eduvictors)

Instruments of Money Market

The money market is the arena in which financial institutions provide a broad range of borrowers and investors the opportunity to buy and sell various forms of short-term securities.

INSTRUMENTS OF MONEY MARKET

1. Treasury Bill (T-bills):
It is basically an instrument of short-term borrowing by the Government of India maturing in less than one year. They are also known as Zero coupon bonds.

2. Commercial Paper: 
It is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short-term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days to one year.



3. Call Money: 
It is a short-term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. It is a method by which banks borrow from each other to e able to maintain the cash reserve ratio.


4. Certificate of Deposit (CD): 
It is an unsecured, negotiable short-term instrument in bearer form, issued by commercial banks and development financial institutions. It can be issued to individuals, corporations and companies.


5. Commercial Bill (Trade Bill): 
It is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. The bill can be discounted with a bank it the seller (drawer) needs funds before the bill maturity.

In addition, there are foreign exchange swaps, mortgages and asset-backed securities.