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Introduction
The financial system of any country is the backbone of the economy of that country. country. The financial systems of all economies are broadly subdi!ided into money mo ney marke market" t" ca#ita ca#itall marke market" t" $ilte $ilted$e d$ed d securi securitie tiess marke markett and forei forei$n $n e%chan$e market. The money market" ca#ital market and the $ilt securities mark market et
#ro! #ro!id ides es a!en a!enue uess to the the sur#l sur#lus us sect sector or such such as hou house seho hold ld
institutions in the economy to de#loy their funds to the deficit sector such as cor#orate and $o!ernment sectors to mobili&e funds for their re'uirements. The o#erations in the money market are $enerally shortterm (u#to ) year* in nature" in ca#ital market shortterm to lon$ term and in $ilt securities market $ene $enera rall lly y lon$ lon$t ter erm. m. +o,e +o,e!e !err" in an inte inte$r $rat ated ed fina financ ncia iall syst system em"" the the occurrence of an e!ent in one market of the financial system ,ill ha!e an im#act on the other market system. The -ndian money market is a market for shortterm money and financial asset that are close substitutes for money" ,hich are close substitute for money" ,ith the shortterm in the -ndian conte%t bein$ for ) year. The im#ortant feature of the money market instruments is that it is li'uid and can be turned 'uickly at lo, cost. Thee mon Th oney ey mark market et is no nott a ,ell ,elld def efin ined ed #lac #lacee ,her ,heree the the bu busi sine ness ss is transacted as in the case of ca#ital markets ,here all business is transacted at a form formal al #lac #lace" e" i.e. i.e. stoc stock k e%ch e%chan an$e $e.. Th Thee mo mone ney y mark market et is basi basica call lly y a tel tele#ho e#hon ne marke arkett and and all all the trans ransaactio ctions ns are do done ne throu$ rou$h h ora oral communication and are subse'uently confirmed by ,ritten communication and e%chan$e of relati!e instruments. The money market consist of many
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submarket such as the interbank interbank call money" money" bill discountin$" treasury bills" ert ertif ific icat atee of de#o de#osi sits ts (/s (/s*" *" omm ommer erci cial al #a#e #a#err (0s (0s*" *" Re#u Re#urc rcha hase se O#tions1Ready For,ard (RE0O or RF*" -nterBank #artici#ation certificates (-B0s (-B0s*" *" 2ecur 2ecuriti itised sed /ebts" /ebts" O#tion O#tions" s" Financ Financial ial Futur Futures" es" For,ar For,ard d Rate Rate A$reement (FRAs*" etc. ,hich collecti!ely constitute the money market.
0artici#ants in money market
Lenders: These are the entities ,ith sur#lus lendable funds like Banks (ommercial" oo#erati!e 3 0ri!ate* Mutual Funds or#orate Entities ,ith bulk lendable resources of minimum of Rs. 4 crores #er transaction Financial -nstitutions
Borrowers: These are entities ,ith deficit funds and includes the ones as abo!e.
FEATURES FEATURES OF MONEY M ONEY MARKET ).
-t is a collec collectio tion n of marke markett for for follo follo,in ,in$ $ instru instrume ments nts all all mon oney ey"" no noti tice ce mon oney ey"" re#o re#os" s" term term mo mone ney y" trea treasu sury ry bill bills" s" commercial bills" certificate of de#osits" commercial #a#ers inter bank #artici#ation certificates" intercor#orate intercor#orate de#osits" s,a#s" etc.
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MONEY MARKET
Thee sub Th sub marke arkets ts ha!e a!e clo close inte nter rela elatio tionsh nshi# 3 free ree mo!ement of funds from one submarket to another.
4.
A net,ork of lar$e number of #artici#ants e%ists ,hich ,ill add $reater de#th to the market.
6.
Acti!ities in the money market tend to concentrate in some centre" ,hich ser!es a re$ion or an area. The ,idth of such area may !ary de#endin$ u#on the si&e and needs of the market itself.
7.
Thee rela Th elatio tionsh nshi# that that char haract acteri eri&es &es a mon oney ey marke arkett is im#ersonal in character so that com#etition is relati!ely #ure.
8.
0rice differentials for assets of similar ty#e ,ill tend to be eliminated by the inter#lay of demand 3 su##ly.
9.
A certai certain n de$ree de$ree of fle%ib fle%ibili ility ty in the re$ula re$ulato tory ry frame frame,or ,ork k e%ists and there are constant endea!ours for introducin$ a ne, instruments 1 inno!ati!e dealin$ techni'ues.
:.
-t is a ,holesale market 3 the the !olume of funds or financial assets traded are !ery lar$e i.e. in crores of ru#ees.
The functions of mone m!r"et !re !s fo##ows:
(a* 0ro!idin$ an e'uilibratin$ e'uilibratin$ mechanism for le!elin$ le!elin$ out the shortterm sur#luses and deficits. (b* Offerin$ Offerin$ a focal #oint for the central bank inter!ention for influencin$ li'uidity in the economy.
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(c* reatin$ an access to the user of shortterm money to meet their re'uirements at a realistic #rice
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$% MONEY MARKET INSTRUMENTS
$% &!## Mone
all1Notice money is an amount borro,ed or lent on demand for a !ery short #eriod. -f the #eriod is more than one day and u#to )6 days it is called ;Notice money; other,ise the amount is kno,n as all money;. -nter!enin$ holidays and1or 2undays are e%cluded for this #ur#ose. No collateral security is re'uired to co!er these transactions
Fe!tures •
The call market enables the banks and institutions to e!en out their daytoday deficits and sur#luses of money.
•
ommercial banks" oo#erati!e Banks and #rimary dealers are allo,ed to borro, and lend in this market for ad
•
2#ecified All-ndia Financial -nstitutions" Mutual Funds and certain s#ecified entities are allo,ed to access all1Notice money only as lenders.
•
-t is a com#letely interbank market hence nonbank entities are not allo,ed access to this market.
•
-nterest rates in the call and notice money market are market determined.
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MONEY MARKET
-n !ie, of the short tenure of such transactions" both the borro,ers and the lenders are re'uired to ha!e current accounts ,ith the Reser!e Bank of -ndia.
•
-t ser!es as an outlet for de#loyin$ funds on short term basis to the lenders ha!in$ steady inflo, of funds
'% TREASURY BILLS MARKET
-n the short term" the lo,est risk cate$ory instruments are the treasury bills. RB- issues these at a #refi%ed day and a fi%ed amount. These are four ty#es of treasury bills. •
)6day Tbill maturity is in )6 days. -ts auction is on e!ery Friday of e!ery ,eek. The notified amount for this auction is Rs. )== crores.
•
>)day Tbill maturity is in >) days. -ts auction is on e!ery Friday of e!ery ,eek. The notified amount for this auction is Rs. )== crores.
•
):5day Tbill maturity is in ):5 days. -ts auction is on e!ery alternate ?ednesday (,hich is not a re#ortin$ ,eek*. The notified amount for this auction is Rs. )== crores.
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486/ay Tbill maturity is in 486 days. -ts auction is on e!ery alternate ?ednesday (,hich is a re#ortin$ ,eek*. The notified amount for this auction is Rs. 7== crores. A considerable considerable #art of the $o!ernm $o!ernment;s ent;s borro,in$ borro,in$ss ha##en ha##en throu$h Tbills of !arious maturities. Based on the bids recei!ed at the auctions" RB- decides the cut off yield and acce#ts all bids belo, this yield. yield. The usual in!estors in these instruments are banks ,ho in!est not only to #art their shortterm sur#luses but also since it forms #art of their 2@R in!estments" insurance com#anies and F-s. F--s so far ha!e not been allo,ed to in!est in this instrument.
These Tbills" ,hich are issued at a discount" can be traded in the the mark market et.. Mo Most st of the the time time"" un unle less ss the the in!e in!est stor or re'u re'ues ests ts s#ecifically" s#ecifically" they are issued not as securities but as entries in the 2ubsidiary eneral @ed$er (2@*" ,hich is maintained by RB-. The transactions cost on Tbill are none%istent and tradin$ is considerably hi$h in each bill" immediately after its issue and immediately before its reedemtion. The returns on Tbills are de#endent on the rates #re!alent on other other in!est in!estme ment nt a!enue a!enuess o#en o#en for in!est in!estors ors.. @o, yield yield on Tbills" $enerally a result of hi$h li'uidity in bankin$ system as indicated by lo, call rates" ,ould di!ert the funds from this
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market to other markets. This ,ould be #articularly so" if banks alre alread ady y ho hold ld the the mini minimu mum m sti# sti#ul ulat ated ed amou amount nt (2@R (2@R** in $o!ernment #a#er.
(% INTER)BANK TERM MONEY -nter bank market for de#osits of maturity beyond )6 days and u#to three months is referred to as the term money market. The s#ecified entities are not allo,ed to lend beyond )6 days. The de!elo#ment of the term money market is ine!itable due to the follo,in$ reasons •
/eclinin$ s#read in lendin$ o#erations
•
olatility in the call money market
•
ro,in$ desire for fi%ed interest rates borro,in$ by cor#orate
•
Mo!e to,ards fuller inte$ration bet,een fore% and money market
•
2trin$ent $uidelines by re$ulators1mana$ement of the institutions
*% &ERTIFI&ATE OF +E,OSITS MARKET After treasury bills" the ne%t lo,est risk cate$ory in!estment o#tion is the certificate
of
de#osit
(/*
issued
by
banks
and
F-s.
Allo,ed in )>:>" /s ,ere one of RB-;s measures to dere$ulate the cost of funds funds for banks and F-s. A / is a ne$otiabl ne$otiablee #romissory #romissory note" secure and short term (u#to a year* in nature. A / is issued at a discount to the face
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!alue" the discount rate bein$ ne$otiated bet,een the issuer and the in!estor. Thou$h RB- allo,s /s u#to oneyear maturity" the maturity most 'uoted in the
market
is
for
>=
days.
/s are issued by banks and F-s mainly to au$ment funds by attractin$ de#osits from cor#orates" hi$h net ,orth indi!iduals" trusts" etc. the issue of /s reached a hi$h in the last t,o years as banks faced ,ith reducin$ de#osit base secured funds by these means. The forei$n and #ri!ate banks" es#ecially" es#ecially" ,hich do not ha!e lar$e branch net,orks and hence lo,er de#osit base use this instrument instrument to raise funds. funds.
The rates on these de#osits are determined by !arious factors. @o, call rates ,ould mean hi$her li'uidity in the market. Also the interest rate on oneyear bank de#osits acts as a lo,er barrier for the rates in the market.
-% INTER)&OR,ORATE +E,OSITS MARKET
A#art from 0s" cor#orates also ha!e access to another market called the inte inter r cor# cor#or orat atee de#o de#osi sits ts (-/ (-/** mark market et.. An -/ -/ is an un unse secu cure red d loan loan e%tended by one cor#orate to another. E%istin$ mainly as a refu$e for lo, rated cor#orates" this market allo,s funds sur#lus cor#orates to lend to other cor#orates. Also the betterrated cor#orates can borro, from the bankin$ system and lend in this market. As the cost of funds for a cor#orate in much hi$her than a bank" the rates in this market are hi$her than those in the other markets. -/s are unsecured" and hence the risk inherent in hi$h. The -/
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market is not ,ell or$anised ,ith !ery little information a!ailable #ublicly about transaction details
8. &OMMER&IAL ,A,ER MARKET 0s are ne$otiable shortterm unsecured #romissory notes ,ith fi%ed maturities" issued by ,ell rated com#anies $enerally sold on discount basis. om#anies can issue 0s either directly to the in!estors or throu$h banks 1 merchant banks (called dealers*. These are basically instruments e!idencin$ the liability of the issuer to #ay the holder in due course a fi%ed amount (face !alue of the instrument* on the s#ecified due date. These are issued for a fi%ed #eriod of time at a discount to the face !alue and mature at #ar.
-deally" the discount rates on 0s ou$ht to be determined by the demand and su##ly factors in the money market and the interest rates on the other hand com#etin$ money market instruments such as certificate of de#osits (/s*" commercial bills and treasury bills. -t has been noticed that in a com#arati!ely stable and lo, rate conditions in the money market" the discount rates in the 0 markets do some,hat soften ,hereas in the ti$ht money market situation it may not be #ossible e!en for a best rated com#any to issue 0s at lo,er rates than the lendin$ rates on it;s banks lines of credit. This is #artly for the reason that banks could also firm u# the lendin$ rates durin$ such #eriods. The maturity mana$ement of 0s should also affect the 0 rates. -t has been obser!ed that in a #eriod of #rolon$ lo, and steady
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money market rates there is no si$nificant different bet,een the discount rates if 0s for >= and ):= days.
A+.ANYA/ES OF &,0s
The ad!anta$e of 0 lies in its sim#licity in!ol!in$ less #a#er ,ork as lar$e amounts can be raised ,ithout ha!in$ any underlyin$ transaction. -t $i!es fle%ibility to the com#any by #ro!idin$ an additional o#tion of raisin$ funds #articularly ,hen the conditions #re!ailin$ in the money market are fa!orable. -n a re$ime ,here there is a #rescri#tion of a minimum lendin$ rate for banks ad!ances" the raisin$ of funds by a com#any u#to 97C of its ,orkin$ ca#ital limit throu$h issue of 0s at some,hat lo,er interest rates" enables it to reduce the o!erall cost of shortterm funds. -t is" ho,e!er" to be reco$nised that under the cash credit system of lendin$" the borro,ers; effecti!e interest cost is lo,er than the #rescribed lendin$ rate as this system affords fle%ibility to borro,ers to reduce the outstandin$ as and ,hen sur#lus funds accrue to them. +ence" a com#any #ro#osin$ to issue 0s should ha!e a clear #erce#tion as to its cash flo, durin$ the #eriod for ,hich 0s are #ro#osed to be issued and accordin$ly fi% the discount rates at ,hich
the
instrument
is
to
be
issued.
From the in!estor;s #oint of !ie," the in!estment in 0s $i!es com#arati!ely hi$her yields than those obtained on bank de#osits of similar maturities. Althou$h 0 is an unsecured #romissory note" the a!ailability of standby facility by banks to the issuin$ com#anies makes it;s holders confident of
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$ettin$ the #ayment on due dates. This a$reement also facilitated 'uicker #ayment as a com#any;s banker and make the #ayment to the holders on their behalf and as the com#anies #ermissible ,orkin$ ca#ital limit $ets reinstated to the e%tent of maturin$ 0s #ro!ided" ho,e!er" at the time of maturity of 0s" the com#anies ma%imum #ermissible bank finance has not been re!ised do,n,ards.
1% REA+Y FOR2AR+ &ONTRA&T -t is a transaction in ,hich t,o #arties a$ree to sell and re#urchase the same security. Dnder such an a$reement the seller sells s#ecified securities ,ith an a$reement to re#urchase the same at a mutually decided future date and a #rice. 2imilarly" the buyer #urchases the securities ,ith an a$reement to resell the same to the seller on an a$reed date in future at a #redetermined #rice. 2uch a transaction is called a Re#o ,hen !ie,ed from the #ros#ecti!e of the seller of securities (the #arty ac'uirin$ fund* and Re!erse Re#o ,hen described from the #oint of !ie, of the su##lier of funds. Thus" ,hether a $i!en a$reement is termed as Re#o or a Re!erse Re#o de#ends on ,hich #arty
initiated
the
transaction.
The lender or buyer in a Re#o is entitled to recei!e com#ensation for use of funds #ro!ided to the counter#arty. Effecti!ely the seller of the security borro,s money for a #eriod of time (Re#o #eriod* at a #articular rate of interest mutually a$reed ,ith the buyer of the security ,ho has lent the funds to the seller. The rate of interest a$reed u#on is called the Re#o rate.
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The Re#o rate is ne$otiated by the counter#arties inde#endently of the cou#on rate or rates of the underlyin$ securities and is influenced by o!erall money
market
conditions.
The Re#o1Re!erse Re#o transaction can only be done at Mumbai bet,een #arties a##ro!ed by RB- and in securities as a##ro!ed by RB- (Treasury Bills" entral12tate o!ernment securities*
Uses of RE,O0s -t hel#s banks to in!est sur#lus cash. -t hel#s in!estor achie!e money market returns ,ith so!erei$n risk. -t hel#s borro,er to raise funds at better rates. An 2@R sur#lus and RR deficit bank can use the Re#o deals as a con!enient ,ay of ad
3% &ommerci!# ,!4er
Bills of e%chan$e are ne$otiable instruments dra,n by the seller (dra,er* of the $oods on the buyer (dra,ee* of the $oods for the !alue of the $oods deli!ered. These bills are called trade bills. These trade bills are called
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commercial bills ,hen they are acce#ted by commercial banks. -f the bill is #ayable at a future date and the seller needs money durin$ the currency of the bill then he may a##roach his bank for discountin$ the bill. The maturity #roceeds or the bank ,ill recei!e face !alue of discounted bill" from the dra,ee. -f the bank needs fund durin$ the currency of the bill then it can rediscount the bill already discounted by it in the commercial bill rediscount market
at
the
market
related
to
discount
rate.
The RB- introduced the Bills Market scheme (BM2* in )>75 and the scheme ,as later modified into Ne, Bills Market scheme (NBM2* in )>9=. Dnder the scheme" commercial banks can rediscount the bills" ,hich ,ere ori$inally discounted by them" ,ith a##ro!ed institutions (!i&." ommercial Banks" /e!elo#ment Financial -nstitutions" Mutual Funds" 0rimary /ealer" etc.*.
?ith the intention of reducin$ #a#er mo!ements and facilitate multi#le rediscountin$" the RB- introduced an instrument called /eri!ati!e Dsance 0romissory Notes (/D0N*. 2o the need for #hysical transfer of bills has been ,ai!ed and the bank that ori$inally discounts the bills only dra,s /D0N. These /D0Ns are sold to in!estors in con!enient lots of maturities (from )7 days u#to >= days* on the basis of $enuine trade bills" discounted by the discountin$ bank.
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(% E5o#ution of mone m!r"et in Indi!
The e%istence of money market could be traced back to hundis or indi$enous bills of e%chan$e. These ,ere in use from the )5 th century and it a##ears from the ,ritin$s of fe, Muslim historians" Euro#ean tra!elers" state records and the Ain-akbari that indi$enous bankers #layed a #rominent #art in lendin$ money both under the early Muslim and mo$ul rulers in -ndia. The indi$enous bankers financed internal and forei$n trade ,ith cash or bill and $a!e financial assistance to rulers durin$ #eriod of stress. The money market in -ndia is not a sin$le homo$eneous entity and may be di!ided into t,o #arts (a* the central #art consistin$ of the Reser!e Bank of -ndia" 2tate Bank of -ndia" the 0ublic 2ector Bank" the 0ri!ate 2ector Bank" the E%chan$e Banks" and the other de!elo#ment financial institution and (b* the ba&aar #art consistin$ of the money Glenders" indi$enous bankers" loan office" chit funds" nidhis" etc." and the coo#erati!e banks occu#yin$ the intermediate #osition. The connection bet,een these #arts is incom#lete as the -ndian financial system ,as some,hat loosely or$ani&ed and ,ithout much cohesion until )>47 and lacked a central coordinatin$ a$ency. Till then" the central #art ,as lar$ely dominated by $o!ernment" ,hich controlled currency and throu$h it influenced the bank rate decisi!ely.
O,in$ to the absence of a central bank until )>47" the -m#erial Bank of -ndia #erformed some of the functions of the bankerHs bank. The other Bank
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are not bound to kee# balances ,ith it" but in #ractice the e%chan$e Banks and lar$er -ndia 9=s" durin$ the busy season (OctoberA#ril*" ,hen the su##ly of hundis ,as $reater than the resource of the indi$enous bankers" a tem#orary connection ,as established bet,een a number of them ,ho ,ere selected And #laced on the a##ro!al list and the 2tate Bank and the
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certain ma%imum limits determined accordin$ to the financial standin$ off the financial standin$ of the banker or $a!e them ad!ances a$ainst demand #romissory notes si$ned by to of them.
6!7 O4er!tion of the centr!# or or8!ni9ed 4!rt of the mone m!r"et
These may be considered under the three heads
(i* The call money market" (ii* The bill market" and (iii* Other submarkets (0s and /s*
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The call money market
all money market is the core of the central #art of the money market" in ,hich banks lend money to each other. To be$in ,ith call money o#erated from Mumbai and later alcutta" /elhi and Madras 78" the e%chan$e banks ,ere the chief borro,er on account of nature of their business. Their ad!ances ,ere $enerally !ery li'uid and they held lar$e #ro#ortion of bills. As a conse'uence" they functioned ,ith a fine cash ratio and turned to the call market to make u# any deficiency of funds for day or t,o. 0rior to )>78" some of the -ndian banks also resorted to the call money market occasionally as a borro,ers in order to maintain their cash ratio at the le!el re'uired by la,. +o,e!er since )>78" the -ndia Bank ha!e
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been resortin$ to the call money market mare fre'uently ,hene!er the demand u#on them for credit o,in$ to increasin$ in!estment acti!ity #ress u#on their resources. +ence" the funds no, flo, more easily and to a lar$e e%tent" not amon$ -ndian banks center like Mumbai or alcutta" but also amon$ !arious centers.
6ii7
The Bill Market
The bill market can be di!ided into t,o !i&." the commercial bills market and the treasury bills market.
&ommerci!# Bi##s M!r"et
Bill financin$ is an im#ortant mode of meetin$ the credit needs of trade and industry in de!elo#ed economies because it facilitates an efficient #ayment system bein$ selfli'uidatin$ in nature. -n -ndia bill financin$ has been #o#ular since lon$ in ancient I+undiJ form. The e%istence of an a##ro!ed bills market enables rediscountin$ of bills ,hich is a traditional instrument of credit control. As such" the -ndian central Bankin$ En'uiry ommittee ()>4)* had stron$ly recommended the establishment of a market in commercial bills. But nothin$ could be done by the Reser!e Bank till )>75" on account of the ,ar" the indifference of British o!ernment and the #artition of the country.
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Banks of -ndia" es#ecially the E%chan$e Banks" used to discount bills of a##ro!ed #arties fulfillin$ certain conditions" but there ,as no discount in the discount market in -ndia" e%ce#t the limited bills market #ro!ided by the Reser!e Bank for further dealin$s in these bills and banks had either to kee# them until they matured or rediscount them in @ondon discount market" if they ,ere e%#ort bills. The RB- #ioneered effort on de!elo#in$ bill culture in -ndia. -t introduced Bill Market 2cheme (BM2* in )>75 to #ro!ide demand loan a$ainst bankHs #romissory notes su##orted by their constituentHs >= days usance bills or #romissory notes. The bank could also co!er #art of their ad!ances" loans" etc." into usance #romissory notes for lod$in$ ,ith the RB- collateral. The )>75 Bill Market 2cheme ,as ho,e!er" basically a scheme of accommodation for banks. The scheme ,as desi$ned to ease the #roblem of #ro!idin$ tem#orary finance to commercial banks by the Reser!e Bank as a lender of last resort. But" it did not succeed in de!elo#in$ a $enuine bill market. 0romotion of bill culture" ho,e!er" remained one of the ma9=" based on the recommendations of Narasimham committee" RB- introduced Bill Rediscountin$ 2cheme (BR2* also kno,n as Ne, Bill Market 2cheme (NBM2* ,hich continues till date in modified form. Dnder this scheme" all scheduled commercial banks are eli$ible to rediscount $enuine trade bills arisin$ out of sale1#urchase of $oods ,it the RB- and other a##ro!ed institutions. To #romote the bills culture" RB- in March )>: educed the discount rate for bills for borro,ers from )8.7C to )7.7C. Thereafter" the bills finance has
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MONEY MARKET
al,ays been sub:>.
Tre!sur Bi##s M!r"et -n addition to internal and forei$n trade bills" banks deal in Treasury Bills. As they are issued at a discount by the o!ernment of -ndia or 2tate o!ernment and are re#ayable usually after three months" banks re$ard them as a !ery suitable form of in!estment for their o,n sur#lus fund. Most of them ha!e been issued by o!ernment of -ndia. /urin$ the First ?orld ?ar" they ,ere issued to meet $o!ernmentHs disbursements on behalf of British ?ar Office. /urin$ the #ost,ar #eriod" they ,ere issued to meet bud$et deficits and to re#ay old bills. @ater" they ha!e been issued to #ro!ide ,ays and means of current and ca#ital e%#enditure" re#ayment of old bills and con!ersion of loans. /urin$ the 2econd ?orld ?ar" they ,ere issued to #ro!ide in lar$e amounts for the same #ur#ose as the First ?orld ?ar. Tenders for them are in!ited by $o!ernment notification and are recei!ed by the office of Reser!e Bank. The tenders 'uotin$ the lo,est discount are acce#ted and the bills are issued and #aid by the offices of the Reser!e Bank. -n addition" intermediate Treasury Bills are sold sometime at a #articular rates. At least >=C of the tenders and #urchases are made by fe, bi$ banks and nearly half of these by the 2tate Bank alone. This makes $o!ernment in -ndia de#endent u#on a fe, banks" ,hereas in @ondon" lar$e funds ,hich do not belon$ to banks are in!ested in Treasury Bills and enable o!ernment there to secure more fa!orable rates. onse'uently the Reser!e Bank
5)
T.Y.BFM
MONEY MARKET
sometimes had to inter!ene and #urchase Bills on its o,n account. The Reser!e Bank has tried to or$ani&e and ,iden the Treasury bill market" in order to secure better control of the money market" ,ith the rediscountin$ of the bills ,ith itself and to enable the market to carry a lar$e floatin$ debt and thereby reduce the cost of o!ernment borro,in$. The efforts of the Reser!e Bank in ,idenin$ the Treasury bill market ha!e not succeeded fully until the late )>:=s" o,in$ to the absence of a discount market in these bills. Banks ,ere reluctant to discount Treasury bill ,ith the Reser!e Bank because the money market re$arded such discount as a si$n of ,eakness. This lead to funds bein$ locked in and market elasticity ,as not there in case of Treasury bill. 2ales of treasury bills ,ere sus#ended from 5= th A#ril )>76 to 5 nd No!ember )>76 and form 8 th A#ril )>78 to ) st Au$ust )>7:. +o,e!er" since )>9=s" the treasury bills ,ere issued at a fi%ed rate of 6.8C and ,ere for tenure of >) days. +o,e!er" ,ith the settin$ u# of the /iscount and Finance +ouse of -ndia (/F+-* in )>::" the secondary market for the treasury bills be$an to de!elo#.
6iii7
Other Sub-markets
The other im#ortant submarkets that ha!e come into e%istence in the money market are the ertificate of de#osits (/s* market and the ommercial 0a#ers (0s* market. These submarkets are of recent ori$in. ?hile the /s market becomes o#erational durin$ )>:>)>>=" the 0s market emer$ed in )>>=>).
55
T.Y.BFM
MONEY MARKET
&ertific!te of +e4osit 6&+s7 The /s are basically de#osit recei#ts issued by a bank to the de#ositor. -n -ndia the Tambe ?orkin$ $rou# in )>:5 ,as the first one to e!aluate the introduction of /s in the money market. The $rou#" ho,e!er" did not recommend introduction of /s on the $round of inherent ,eakness !i&. (i* absence of secondary market" (ii* administered interest rate on bank de#osits" and (iii* dan$er of $i!in$ rise to fictitious transaction. The a$hul ?orkin$ rou# in )>:9 also discussed at lar$e the desirability of launchin$ this instrument. The ,orkin$ $rou# ,as of the !ie, that de!elo#in$ /s as money market instrument ,ould not be meanin$ful unless the shortterm de#osit rate are ali$ned ,ith other rates in the system. As such" it did not recommend introduction of /s. The $rou#" ho,e!er" noted the im#ortance of /s and recommended feasibility of introduction of /s after a##ro#riate chan$es at a later date.
&ommerci!# ,!4ers 6&,s7 The 0s as an instrument are unsecured usance #romissory notes issued by the cor#orate borro,ers ,ith fi%ed maturity e!idencin$ their shortterm debt obli$ation. -n -ndia" a$hul ?orkin$ rou# )>:9 ,as the first to recommend introduction of 0s in -ndian money market. -t noted that 0 market has a ad!anta$e of $i!in$ hi$hly rated cor#orate borro,ers chea#er funds ,hile #ro!idin$ in!estors hi$her interest earnin$s. Thou$h the banks ,ould loose some of their first rated borro,in$ clientele and conse'uently interest income they can su##lement their earnin$ by actin$ as issuers and
54
T.Y.BFM
MONEY MARKET
dealers of commercial #a#ers. Accordin$ly the ,orkin$ $rou# recommended the launch of 0s and su$$ested a scheme for issue of 0s.
67 The B!9!!r ,!rt
-m#ortant co$s in the e!olution of the -ndian money market e!olution of the -ndian Money Market are the indi$enous institutions. Althou$h" nidhis and chit funds e%ist" they are not im#ortant or money market as such they absorb funds that mi$ht other,ise fed into bankin$ system. A more ob!ious money market institution ,as the Multani shroff. Formerly" and indeed into )>8=s and the early )>9=s" the Multani shroff lent money to customer by discountin$ a hundi (,hich ,as ori$inally in #romissory note form* and then" after endorsement and by arran$ement throu$h a hundi broker" rediscounted ,ith a schedule bank u# to limits a$reed u#on. Althou$h Multani shroffs ha!e sur!i!ed as a #art of the indi$enous sector" their clan is readily declinin$ and e%#ected to become e%tinct.
+iscount !nd Fin!nce ;ouse of Indi! 6+;FI7 AN+ Securites Tr!din8 &or4or!tion of Indi! 6ST&I7 A !ery si$nificant ste# in e!olution of the -ndian money market has been settin$ u# of the /+F- and the 2T-. As a se'uel to the recommendations of the ?orkin$ rou# of the money market" the /iscount and Finance +ouse of -ndia ,as set u# by the RB- :: under the om#anies Act" )>78 ,ith an
56
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MONEY MARKET
autorised share ca#ital of Rs. )== crores subscribed by the RB- (Rs. 44 crores* and all-ndia financial institutions (Rs )8 crores*. /+F- 'uotes re$ular bid and offer rates for treasury bills and commercial bills rediscountin$. +o,e!er only bid #rices for /s and 0s are normally 'uoted. /+F- is also autorised to undertake IRE0OJ transaction a$ainst treasury bills and it #ro!ides daily buy back and sell back rates for treasury bills to suit their re'uirements of commercial banks. The 2T- is of recent ori$n. Basically" setu# for dealin$ in $o!ernment securities market to broaden and dee#en this market" the 2T- also has been allo,ed to deal in call money market and the treasury bills market.
*% Recommend!tion of 5!rious committees
The -ndian money market has under$one metamor#hosis durin$ the last fe, years o,in$ to a series of measure ,hich increased the number of #artici#ants" introduced ne,er instrument and dere$ulated interest rate. The Reser!e Bank of -ndia (RB-* set u# a committee to re!ie, the functionin$ of monetary system" !i&." 2DK+MOY +AKRAARTY OMM-TTEE in )>:5" a ,orkin$ $rou# to re!ie, the functionin$ of money market" !i&." A+D@ ?ORK-N ROD0 in )>:8 and the NARA2-+M+AM OMM-TTEE to re!ie, the functionin$ of the financial system in -ndia. ?hile
the
hakra!arthy
ommittee
recommended
measures
for
im#ro!ement in the monetary system" the a$hul ?orkin$ rou# recommended measures to acti!ate and !itali&e the money market and the
57
T.Y.BFM
Narasimham ommittee recommended
MONEY MARKET
measures to
streamline the
functionin$ of the financial system.
RB- a##ointed a ,orkin$ $rou# on Money market under the hairmanshi# of N a$hul" ,hich su$$ested a number of measures to dee#en the money market. As a follo, u# the RB- took the follo,in$ initiati!es
Formation of /F+-" an institution established in March )>::" to
#ro!ide li'uidity to money market instruments.
-ncreasin$ the ran$e of money market instruments 0" / and -nter
bank #artici#ation ertificates are some of the instruments introduced in )>:::>.
Freein$ of call money rates in sta$es from interest rate re$ulation to
#rice disco!ery based on market forces.
Today the Bank Rate has emer$ed as a reference rate and the call money rates $enerally o#erate in a corridor ,ith the Re#o rate actin$ as a floor and the Bank Rate as a ceilin$. At #resent the o!erni$ht money market rate is the only floatin$ rate benchmark. The methodolo$y used for calculatin$ the o!erni$ht inde% is trans#arent. Reuters M-BOR is the ,ei$hted a!era$e of call money transactions of 55 banks and other #layers. N2EM-BOR (Mumbai -nterbank Offer Rate* is the rates #olled from a re#resentati!e #anel of 45banks1 institutions1 0/s.
58
T.Y.BFM
MONEY MARKET
The other benchmark instruments are )6" >)" ):5 3 486 day T.bills. Also ,e ha!e the 2B-0@R rate.
Recommend!tion of N!r!simh!m &ommittee 6A4ri# $<<37 The !arious recommendations in res#ect of the money market in the sub
•
The banks should #ut in #lace #ro#er Asset@iability Mana$ement #olicies" ,hich should #rescribe tolerance le!els for mismatches in !arious time bands.
•
The interbank cal and money market and interbank term money market should be strictly restricted to banks. The only e%ce#tion should be #rimary dealer (0/s*" ,ho in a sense" #erform a key function of e'uilibratin$ the call money market and are formally treated as banks for the #ur#ose of their of their interbank transactions. All the other #resent nonbank #artici#ants in the inter bank call money market should not be #ro!ided access to the inter bank call money market. These institution could be #ro!ide access to
59
T.Y.BFM
MONEY MARKET
the money market throu$h different other se$ments of the money market. •
2tructural chan$es ,ould result in the de!elo#ment of a stron$ and stable money market ,ith li'uidity and de#th.
•
The forei$n institutional in!estor should be $i!en access to the Treasury bill market. Broadenin$ the market by increasin$ the #artici#ant ,ould #ro!ide de#th to the market.
•
?ith the #ro$ressi!e e%#ansion of the for,ard e%chan$e market there should be endea!our to inte$rate the for,ard e%chan$e market ,ith the s#ot market by allo,in$ the #artici#ant in the s#ot fore% market to #artici#ate in the for,ard market by their e%#osure. Furthermore" the fore% market" the money market and the securities market should be allo,ed to inte$rate and their for,ard #rimia should reflect the interest rate differential. As instruments mo!e in tandem in these markets the desidera!iti!e of a seamless and a !ibrant financial market ,ould ho#efully emer$e.
-% M!=or Reforms in Indi!n Mone M!r"et
+ere8u#!tion of Interest R!tes 2ome of the im#ortant #olicies in the dere$ulation of interest rates ha!e been
5:
T.Y.BFM
).
MONEY MARKET
The lendin$ and de#osit rates that ha!e" o!er time" been considerably
freed. @endin$ rates are no, linked to the 0@R" and the banks de#endin$ on their risk #erce#tions freely determine the s#reads. /e#osit rates beyond one year ha!e been freed" and de#osit rates less than one year linked or #e$$ed to the Bank Rate. All refinance the OMO o#erations and li'uidity to the 0rimary /ealers (0/s* ha!e been linked to the Bank Rate. To that e%tent the Bank Rate has been emer$in$ as a kind of reference rate in the interest rate scenario. 5.
The second interestin$ as#ect has been that the borro,in$s by the
$o!ernment (since )>>5* ha!e been at market rates. 4.
The 02Ds and F-s" ,ho had been lar$ely de#endin$ on bud$etary
su##ort for their resources" ha!e been forced to $o to the market to raise their resource re'uirements.
Inte8r!tion of M!r"ets The other im#ortant as#ect of the fi%ed income market is the close inter linka$e bet,een the money and debt se$ments. The all" Notice 3 Term money markets are to be made #urely interbank markets. The nonbank #artici#ants are bein$ shifted to the Re#o market. +o,e!er the e%istin$ #layers ha!e been allo,ed to #ark their shortterm in!estments till they find other a!enues. The cor#orates ha!e the facility of routin$ their call transactions throu$h the 0/s.
5>
T.Y.BFM
MONEY MARKET
,rim!r +e!#ers -n order to make the $o!ernment securities market more !ibrant" li'uid and to ensure market makin$ ca#abilities outside RB- a system of 0/Hs ,as established. The 0/s ha!e been allo,ed to o#erate a current account and alon$ ,ith a 2@ account. They also ha!e been allo,ed to o#en constituent 2@ accounts. RB- has #ro!ided them li'uidity su##ort facility. -n order to facilitate their continued #resence in auctions the RB- in!ites bids for under,ritin$ in res#ect of all auctions. Routin$ of o#erations in the call money market is allo,ed throu$h 0/Hs. They are allo,ed the facility of funds from one centre to another under RB-Hs Remittance facility scheme. The number of 0/s has been increased from 9 to )4. -nfact the introduction of 0/s has added to the li'uidity in the market.
.!#u!tion of securities Banks ha!e been re'uired to mark 9=C of their #ortfolio to market from the year )>>:>> and 97C from )>>>5===.
Forei8n Institution!# In5estors 6FIIs7 F--s ha!e been allo,ed to trade in T. Bills ,ithin the o!erall debt ceilin$. They no, ha!e access to all ty#es debt instruments.
+e5e#o4ments in the Mone M!r"ets &!##>Notice Mone M!r"et
4=
T.Y.BFM
MONEY MARKET
As #er the su$$estions of the Narasimham ommittee --" the RB- in the MidTerm Re!ie, of October )>>: that it ,ould mo!e to,ards a #ure inter bank call1notice1term money market" includin$ the 0/s. To,ards this end the nonbank #artici#ants can in!est their shortterm resources in the Re#o market and other money market instruments. Takin$ into consideration the transitional #roblems" it has also been decided to continue ,ith the #resent system of #ermittin$ F-s and MFs to lend in the call1notice money market. The cor#orates can route their call1notice money transactions throu$h the 0/s.
Term R!te -nterbank RR" other then minimum 4C has been done a,ay ,ith. -n this direction the -nterest Rate 2,a#s (-R2* ha!e been introduced for the #artici#ants to hed$e their interest risks. For benchmarkin$ ,e ha!e the )6" >)3 486 T.Bills. Also ,e ha!e the 0s. No, it is to the #artici#ants to use this o##ortunity.
Mone M!r"et Mutu!# Funds 6MMMFs7 Many Mutual Funds ha!e started funds ,hich s#cifically focus on money market. They ha!e also been #ermitted to in!est in rated cor#orate bonds and debentures ,ith a residual maturity of u# to only one year" ,ithin the ceilin$ e%istin$ for 0.
4)
T.Y.BFM
MONEY MARKET
Re4os !nd Re5erse Re4os
Nonbank entities" ,hich are currently #ermitted to take Re#os" ha!e been #ermitted to borro, money throu$h re!erse Re#os at #ar ,ith banks and 0/s. There is no restriction for the duration of a Re#o. All $o!ernment securities ha!e been made a!ailable for Re#o. The Re#os ha!e also been #ermitted in 02D bonds and #ri!ate cor#orate debt securities #ro!ided they are held in demat form in a de#ository and the transactions are done in reco$ni&ed stock e%chan$es.
?% Needs for imiin8 de4th to the m!r"et
+i5ersifin8 in5estor !se
Acti!e #artici#ation by a number of in!estor se$ments" ,ith di!erse !ie,s and #rofiles" ,ould make the market more li'uid. -n order to attract retail in!estors there is need to e%em#t the interest income from income ta%. The mutual funds are e%#ected to take the markets in a bi$ ,ay.
45
T.Y.BFM
MONEY MARKET
Sett#ement sstem reforms -n the settlement and transfer of ,holesale trades" thou$h /0 settlement has been introduced" intercity settlement continues to be a #roblem. -t is not #ossible to buy and sell a security on the same day as transactions are settled on a $ross basis and short sellin$ is not allo,ed. The RB- #lans to introduce the Real Time ross 2ettlement (RT2*" ,hich ,ill add efficiency.
Tr!ns4!renc /e!elo#ment of technolo$y is an inte$ral #art of reformin$ the debt market" es#ecially in the conte%t of #ro!idin$ a technolo$ically su#erior dealin$ and settlement system. +ence the RB- has embarked u#on the technolo$ical u#$radation of the debt market. This includes screenbased trade re#ortin$ system ,ith the use of 2AT communication net,ork com#limented by a centrali&ed 2@ accountin$ system. -t shall also facilitate lo$$in$ bids in auctions of dated securities and T.Bills. This ,ill broaden the #artici#ation in the auction system. The #artici#ants ,ould be re'uired to #ro!ide t,o,ay 'uotes. -t is also belie!ed that the screen ,ould ha!e a chat line mode. The system ,ill be inte$rated ,ith the re$ional current account system. Nothin$ seems to ha!e been finali&ed as of no,. Any,ay this system may not really be effecti!e enou$h to substitute the tele#honic mode of o#eration. The system as has been #lanned does not #ro!ide for a #artici#ant to ,ithhold his identity. No, this factor alone could
44
T.Y.BFM
MONEY MARKET
lead to inefficiencies in 0rice disco!ery" as in the case of a ma
Short se##in8 The #artici#ants feel that this ,ould add to the de#th of the market and also hel# in #ro!idin$ t,o,ay 'uotes. +o,e!er it is not e!ident ,hether the RB- ,ill be allo,in$ this.
,rim!r de!#ers The banks maintain that ,ith all the benefits #ro!ided to them they should be #ro!idin$ fine t,o,ay 'uotes at market rates. For this the 0/s feel that it is essential to allo, the short sellin$ of securities and that e!ery #artici#ant #ro!ides a t,o,ay 'uote.
46
T.Y.BFM
MONEY MARKET
Aw!reness The $o!ernment alon$ ,ith the RB- has decided to do some #ublicity ,ork.
Ret!i#in8 of 8o5ernment securities 2ince the be$innin$ of the reforms it has been reco$ni&ed that a stron$ retail se$ment for $o!ernment se$ment needs to be de!elo#ed. The basic ob>:.
M!r"et Microstructure 47
T.Y.BFM
MONEY MARKET
To de!elo# the #rimary and the secondary markets the follo,in$ #oints need careful e!aluation ).
At #resent the 0/s under,rite a si&eable #ortion of the market loans
and 'uote an under,ritin$ commission. -t has been su$$ested that it be made com#ulsory for them to bid for a minimum #ercent for a minimum #ercent of the notified amount. By increasin$ the number of 0/s the total bids should be brou$ht u#to )==C of the notified amount. 5.
The RB- should try and mo!e out of the #rimary auctions but in
transition could take u#to 5=C of the notified amount. -ncase of the issue bein$ not fully subscribed the RB- should ha!e the o#tion of cancelin$ the entire issue. 4.
radually the RB- should mo!e out of the )6 and >) day T. Bill
auction and then the 486 day auction and then finally from the dated of securities. The RB- should ha!e a stron$ #resence in the secondary market by means of #ro!idin$ t,o,ay 'uotes.
St!nd!rdi9!tion of ,r!ctices 2tandard #ractices in the market need to be e!ol!ed ,ith re$ard to the manner of 'uotes" conclusion of deals" etc. -t has been #ro#osed that the 0rimary /ealers Association and F-MM/2- 'uickly setu# a timeframe for 0. The minimum the documentation and market #ractices" minimum the lock in #eriod. -f needed RB- ,ill come for,ard and indicate a time frame. 48
T.Y.BFM
MONEY MARKET
Most im#ortantly the code of conduct ,ill ha!e to be com#atible ,ith the contem#lated dealin$ screen and the technolo$ical u#$radation.
Ris" M!n!8ement -n!estors in debt instrument face three ma
1% INTEREST RATE S2A,S
1%$ INTRO+U&TION +eri5!ti5es As their name im#lies" are contracts that are based on or deri!ed from some underlyin$ asset" reference rate" or inde%. Most common fin!nci!# deri5!ti5es can be classified as one" or a combination" of four ty#es
49
T.Y.BFM
MONEY MARKET
forwards, futures, options and swaps that are based on interest rates or
currencies. /eri!ati!es hel# to im#ro!e market efficiencies because risks can be isolated and sold to those ,ho are ,illin$ to acce#t them at the least cost. Dsin$ deri!ati!es breaks risk into #ieces that can be mana$ed inde#endently. or#orations can kee# the risks they are most comfortable mana$in$ and transfer those they do not ,ant to other com#anies that are more ,illin$ to acce#t them. From a marketoriented #ers#ecti!e" derivatives offer the free trading of financial risks.
A s,a# is another for,ardbased deri!ati!e that obli$ates t,o counter#arties to e%chan$e a series of cash flo,s at s#ecified settlement dates in the future. 2,a#s are entered into throu$h #ri!ate ne$otiations to meet each firm;s s#ecific riskmana$ement ob:). 2ince then" the markets ha!e $ro,n !ery ra#idly. -nterest Rate 2,a#s (-R2* An interest rate s,a# is a transaction in!ol!in$ an e%chan$e of one stream of interest obli$ations for another. Ty#ically" it results in an e%chan$e of fi%ed rate of interest #ayments. Occasionally" it in!ol!es an e%chan$e of one stream of floatin$ rate interest #ayments for another.
4:
T.Y.BFM
MONEY MARKET
The 4rinci4#e fe!tures of !n interest r!te sw!4 !re: •
-t effecti!ely translates a floatin$ rate borro,in$ into a fi%ed rate borro,in$ and !ice !ersa. The net interest differential is #aid or recei!ed" as the case may be.
•
There is no e%chan$e of #rinci#le re#ayment obli$ations.
•
-t is structured as a se#arate contract distinct from the underlyin$ loan a$reement.
•
-t is a##licable to ne, as ,ell as e%istin$ borro,in$s.
•
-t is treated as an offthebalancesheet transaction
To illustrate the nature of interest rate s,a#s" let us consider an e%am#le. L has a borro,in$ of 7= million on ,hich a floatin$ interest of @-BOR (@ondon -nter Bank Offer Rate* #lus =.57 #ercent is #ayable and Y has a borro,in$ of 7= million on ,hich a fi%ed interest rate of )=.7 #ercent is #ayable. L and Y enter into an -R2 transaction under ,hich L a$rees to #ay Y a fi%ed interest rate of )=.7 #ercent and Y a$rees to #ay L a floatin$ rate of interest rate of @-BOR #lus =.57 #ercent. This transaction may be re#resented dia$rammatically as follo,s.
10.5% X
Y LIBOR + 0.25% 4>
Floating rate borrowing
Fixed rate borrowing
T.Y.BFM
MONEY MARKET
An interestin$ -ndian e%am#le of an -R2 is one entered into by Maruti Ddyo$ @imited (MD@*. On )8T+ March" )>:6" MD@ took a syndicate forei$n loan of D2 97 million. The terms of the loan a$reement s#ecified that MD@ ,ould dra, 4= million by )8 T+ March" )>:7" 6= million by )8T+ March" )>:8" and 7= million by )8 T+ March" )>:9. The loan ,as re#ayable from March )>:: throu$h March )>>). The rate of interest on the loan ,as sti#ulated to be 41: #ercent o!er @-BOR till March )>:: and )1 5 #ercent o!er @-BOR thereafter. oncerned about the dollar @-BOR fluctuation" MD@ in consultation ,ith the $o!ernment" the Reser!e Bank of -ndia" and the 2tate Bank of -ndia" decided to $o in for a -R2. On 4= th uly" )>:7" MD@ entered into a transaction ,ith Bank of America for an -R2. Dnder the deal" Bank of America a$reed to #ay Bank of Tokyo an interest of 41: #ercent o!er @-BOR on 5= million ,hile MD@ a$reed to #ay a fi%ed rate of interest of )=.7 #ercent to Bank of America. -t must be noted that -R2 are different from For,ard Rate A$reements (FRA*. ?hile in FRA" a certain interest rate a##lies for a certain #eriod of time in the future an -R2 is a #ortfolio of FRAHs. All -R2 can be decom#osed into se#arate FRAHs.
6=
T.Y.BFM
MONEY MARKET
Introduction of Forw!rd R!te A8reements !nd Interest R!te Sw!4s The Indi!n scene 6Source: RBI /uide#ines7 O=ecti5e •
To further dee#en the money markets
•
To enable banks" #rimary dealers and all -ndia financial institutions to hed$e interest rate risks.
These $uidelines are intended to form the basis for de!elo#ment of Ru#ee deri!ati!e #roducts such as FRAs1-R2 in the country. They ha!e been formulated in consultation ,ith market #artici#ants. The $uidelines are sub
,rere@uisites 0artici#ants are to ensure that a##ro#riate infrastructure and risk mana$ement systems are #ut in #lace. Further" #artici#ants should also set u# sound internal control system ,hereby a clear functional se#aration of
6)
T.Y.BFM
MONEY MARKET
tradin$" settlement" monitorin$ and control and accountin$ acti!ities is #ro!ided.
+escri4tion of the 4roduct A Forw!rd R!te A8reement 6FRA7 is a financial contract bet,een t,o #arties e%chan$in$ or s,a##in$ a stream of interest #ayments for a notional #rinci#al amount on settlement date" for a s#ecified #eriod from start date to maturity date. Accordin$ly" on the settlement date" cash #ayments based on contract (fi%ed* and the settlement rate" are made by the #arties to one another. The settlement rate is the a$reed benchmark1reference rate #re!ailin$ on the settlement date. An Interest R!te Sw!4 6IRS7 is a financial contract bet,een t,o #arties
e%chan$in$ or s,a##in$ a stream of interest #ayments for a notional #rinci#al amount of multi#le occasions on s#ecified #eriods. Accordin$ly" on each #ayment date that occurs durin$ the s,a# #eriodash #ayments based on fi%ed1floatin$ and floatin$ rates are made by the #arties to one another. 0artici#ants Schedu#e commerci!# !n"s%
0rimary dealers
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All -ndia financial institutions
Benchm!r" r!te The benchmark rate should necessarily e!ol!e in the market and re'uire market acce#tance. The #arties are therefore free to use any domestic money or debt market rate for enterin$ into FRAs1-R2" #ro!ided methodolo$y of com#utin$ the rate is the ob
Si9e There ,ill be no restriction on the minimum or ma%imum si&e of notional or #rinci#al amounts of FRAs1-R2. Norms ,ith re$ard to si&e are e%#ected to emer$e in the market ,ith the de!elo#ment of the #roduct.
Tenure No restrictions
&!4it!# !de@u!c Banks" F-s as #er the sti#ulations contained 0/s as #er the sti#ulations contained
E4osure #imits 64
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Banks" F-s and 0/s ha!e to arri!e at the credit e'ui!alent amount for the #ur#oses of reckonin$ e%#osure to a counter #arty. For this #ur#ose #artici#ants may a##ly the con!ersion factors to notional #rinci#al amounts as #er the ori$inal e%#osure method #rescribed in Anne%ure - and --. The e%#osure should be ,ithin sub limit to be fi%ed for FRAs1-R2 to cor#orates1 banks1 F-s1 0/s by the #artici#ants concerned. -n case of banks and F-s" the e%#osure on account of FRAs1-R2 to$ether ,ith other credit e%#osures should be ,ithin sin$le1 $rou# borro,er limits as #rescribed by RB-. Further ,hile dealin$ ,ith cor#orates" banks" F-s and 0/s should e%ercise due dili$ence to ensure that they (cor#orates* are undertakin$ FRAs1 -R2 only for hed$in$ their o,n ru#ee balance sheet e%#osures. Banks" F-s and 0/s are ad!ised to also obtain a certificate from the authori&ed si$natory1 si$natories of cor#orate1s to such an effect.
Sw!4 ,osition -deally" #artici#ants should undertake FRAs1 -R2 only for hed$in$ underlyin$ $enuine e%#osures. +o,e!er reco$ni&in$ the crucial role#layed by the market maker in de!elo#ment of the #roduct and creatin$ of the market itself" #artici#ants ha!e been allo,ed to deal in the market ,ithout underlyin$ e%#osure. +o,e!er to ensure that the market makers do nor o!er e%tend themsel!es" market makers are re'uired to #lace #rudential limits on s,a# #ositions" ,hich may arise on account of market makin$ acti!ity. 2cheduled commercial banks" should #lace !arious com#onents of assets" liabilities and offbalance sheet #ositions (includin$ FRAs" -R2* in different
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time buckets and fi% #rudential limits on indi!idual $a#s (as #er the #rocedure laid do,n in the #rocedure laid do,n in the RB- ircular on A@M system*.The #rudential limits for different time buckets a##ro!ed by boards of #artici#ants ,ill re'uire !ettin$ by the RB- as mentioned belo,
-nstitution RB-Hs de#artment 0/s -nternal /ebt Mana$ement ell (-/M* F-s
Financial -nstitution /i!ision" /e#artment of Bankin$ 2u#er!ision
The abo!e #rocedures for settin$ u# of limits on s,a# #ositions and e%#osure limits may form the bottomline for the risk mana$ement" #artici#ants ,ho can em#loy more so#histicated methods such as alue at Risk (aR* and 0otential redit E%#osure (0E* may do so.
1%' 2h do firms enter into interest r!te sw!4s Sw!4s for ! com4!r!ti5e !d5!nt!8e om#arati!e ad!anta$es bet,een t,o firms arise out of differences in credit ratin$" market #references and e%#osure.
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Firm A ,ith hi$h credit ratin$ can borro, fi%ed at := b#s o!er 0@R and floatin$ at 7= b#s o!er M-BOR. Another firm B ,ith a lo,er ratin$ can borro, fi%ed at )7= b#s o!er 0@R and floatin$ at := b#s o!er M-BOR. The firm A has absolute ad!anta$e o!er firm B in both fi%ed and floatin$ rates. Firm B #ays 9= b#s more than firm A in the fi%ed rate borro,in$ and only 4= b#s more than A in the floatin$ rate borro,in$. 2o firm B has com#arati!e ad!anta$e in borro,in$ floatin$ rate funds. +ence B borro,s funds at M-BOR #lus := b#s. The $ain because firm A borro,s in the fi%ed rate se$ment is 6,LR C $-D 4s7 ) 6,LR C 3D 4s7 i%e% 1D 4s%
The loss because firm B borro,s in the floatin$ rate se$ment is 6MIBOR C 3D 4s7 ) 6MIBOR C -D 4s7 i%e% (D 4s.
The net $ain in the s,a# 9= 4= 6= b#s. The firms can di!ide this $ain e'ually. Firm B can #ay fi%ed at (0@R P )4= b#s* to firm A and recei!e a floatin$ rate of (M-BOR P := b#s*.
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PLR+30b!
B
# "IBOR + 130b!
PLR+$0b!
"ibor+$0b!
Effecti!e cost for firm A ((0@R P :=* P (M-BOR P :=* (0@R P )4=** MIBOR C (D 4s
This results into a $ain of ((M-BOR P 7=* (M-BOR P 4=** i.e." a $ain of 5= b#s. Effecti!e cost for firm B ((M-BOR P :=* P (0@R P )4=* (M-BOR P :=** ,LR C $(D 4s
This results into a $ain of ((0@R P )7=* (0@R P )4=** i.e." a $ain of 5= b#s. Sw!4s for reducin8 the cost of orrowin8
?ith the introduction of ru#ee deri!ati!es the -ndian cor#orates can attem#t to reduce their cost of borro,in$ and thereby add !alue. A ty#ical -ndian case ,ould be a cor#orate ,ith a hi$h fi%ed rate obli$ation.
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0a,an0riya @td. an AAA rated cor#orate" 4 years back had raised 6year funds at a fi%ed rate of ):.7C. Today a 486day T. bill is yieldin$ )=.57C" as the interest rates ha!e come do,n. The 4month M-BOR is 'uotin$ at )=C. Fi%ed to floatin$ ) year s,a#s are tradin$ at 7= b#s o!er the 486day T. bill !s 8month M-BOR. The treasurer is of the !ie, that the a!era$e M-BOR shall remain belo, ):.7C for the ne%t one year. The firm can thus benefit by enterin$ into an interest rate fi%ed for floatin$ s,a#" ,hereby it makes floatin$ #ayments at M-BOR and recei!es fi%ed #ayments at 7= b#s o!er a 486 day treasury yield i.e. )=.57 P =.7= )=.97 C.
(o)nter* art
3 ont&! "IBOR Fixed 10.'5
"ibor
1$.5%
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The effecti5e cost for ,!w!n) ,ri! Ltd% $3%- C MIBOR ) $D%1 1%1- C MIBOR
At the #resent 4m M-BOR at )=C" the effecti!e cost is )= P 9.97 )9.97C The $ain for the firm is ():.7 )9.97* =.97 C The risks in!ol!ed for the firm are
/efault1 credit risk of counter#arty. This may be i$nored" as the
counter#arty is a bank. This risk in!ol!es losses to the e%tent of the interest rate differential bet,een fi%ed and floatin$ rate #ayments.
The firm is faced ,ith the risk that the M-BOR $oes beyond )=.97C.
Any rise beyond )=.97C ,ill raise the cost of funds for the firm. Therefore it is !ery essential that the firm hold a stron$ !ie, that M-BOR shall remain belo, )=.97C. This ,ill re'uire continuous monitorin$ on the #ath of the firm.
3% ;ISTORY AN+ E.OLUTION After the fall of the Bretton ?oods 2ystem" the $o!ernment of the reat Britain undertook !arious ste#s to #re!ent the do,nslide of the 0ound and instituted ne, internal controls. One of the control measures ,as the 6>
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creation of the /ollar #remium market to discoura$e the direct forei$n in!estment. +o,e!er" this created o##ortunities for financial in$enuity by the British merchant bankers. To a!oid /ollar #remium" 0arallel @oans ,ere introduced. +ere" the #arties ,ere re'uired to e%chan$e the #rinci#al on the !alue date. /urin$ the life of the contract" each #arty ,as to #ay the interests on the currency it had recei!ed. The ne%t crucial ste# ,as the introduction of the Backtoback @oans" in ,hich the loan ,as directly arran$ed bet,een t,o #arent com#anies in different countries and structured under one a$reement. 0arallel @oans ,ere strictly desi$ned to satisfy the letter of the la,. That is ,hy four entities G the #arent and the subsidiary in each of the t,o different countries G had to be in!ol!ed in structurin$ each loan. -n Backtoback loans" the intermediary le!el of the subsidiary ,as eliminated. Backtoback loans tested the le$al ,aters and did not face any #roblems.-n Backtoback @oans" only one documentation co!ered the transaction.These t,o instruments #layed an im#ortant role in #a!in$ the ,ay for the emer$ence of the 2,a#s.
Currency Swaps
The breakdo,n of the Bretton ?oods 2ystem had o#ened u# a ,hole ne, area of the forei$n e%chan$e tradin$. -n a dere$ulated market" banks could offer #roducts to the clients" collect a fee" and im#ro!e their #rofit mar$ins.
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ainin$ entry into the 0arallel and the Backtoback @oans ,as easy for the banks. But t,o #roblems be$an to emer$e. One ,as the old issue of the #a#er,ork" e%ce#t that increased !olume of the loans $a!e a ne, ur$ency to its resolution. The other #roblem ,as related to accountin$. Both of the abo!e mentioned loans ,ere recorded as t,o se#arate transactions. This i$nored the contin$ent nature of the loansm" inflated the balance sheets and distorted the accountin$ ratios that ,ere used in analysin$ the financial health of the banks. The ans,er" dra,in$ hea!ily on the e%#erience of the s,a# net,ork" came in the form of the urrency 2,a#s. -n a urrency 2,a#" the notional amount of the trade ,as desi$nated as off balancesheet" and #ayment of interest by each #arty ,as made contin$ent u#on the other #artyHs #erformance. ?ith the #rinci#al amount of the urrency 2,a# no lon$er sub:)" the ?orld Bank and -BM announced a urrency 2,a# deal ,hich ,as ,ell #ublicised and $a!e an im#etus to the s,a# market. Interest Rate Swaps
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Buildin$ on the t,o im#ortant features of the urrency 2,a#s contin$ency of the #ayments and the offbalancesheet nature of the transaction international banks created and then e%#anded the idea of the -R2 market. Althou$h -R2 ,ere created based on the conce#t of the urrency 2,a#s" a different set of circumstances brou$ht about their e%#losion. The Euromarket" ,here the Eurodollars are traded" is the birth#lace of the -R2.
Euromarket
Be$innin$ in the ;7=s" the 2ocialist $o!ernments be$an to de#osit their hard currency holdin$s in Euro#ean banks because they ,ere concerned that" in the old ?ar en!ironment of the ;7=s" the D2 ,ould free&e their assets. +o,e!er these de#osits ,ere not enou$h to create and sustain a lar$e market. -t ,as the /ollar holdin$s of the D2 cor#orations that created the Euromarket" as it ,as a$ainst the outflo, of the D2 funds that the -nterest E'ualisation Ta% Act (-ETA* ,as #assed (-ETA created a stron$ incenti!e for the D2 in!estors to kee# their /ollars in Euro#e*. The Euromarket ,as created because of the hi$her rates of return in Euro#e and it ,as sustained due to the ta% differentials that could not be arbitra$ed because of the so!erei$nty. Euromarket ,as a conce#t of the laisse&faire. Transactions in this market are mostly ,holesale in the nature and the interest rates are hea!ily influenced by the a!ailability of" and demand for the funds. @oans in
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this market are basically !ariable in nature and if necessary" on a roll o!er basis ,ith fi%ed maturities and non#re#ayment clauses. As the ;:=s be$an" interest rates in the D2 market reached un#recedented hi$h le!els and this trend s#lit into the ratesensiti!e Euromarket. 2o the cor#orations sou$ht hed$in$ !ehicles a$ainst interest rate fluctuations. This ,as the startin$ #oint of the -R2. +ere" the #arties a$ree to the e%chan$e of the interest #ayments calculated on a notional amount. +o,e!er" interest #ayments in the -R2 are based on the different modes of the same currency. Thus" ,e can see that -R2 or more #recisely the s,a# market ,as born as insurance market directly related to the Euromarket loans. This insurance market fuelled and sustained the s,a# market. 2,a#s became insurance !ehicle of the borro,ers because their #remiums ,ere borro,ed. Secondary Factors in the Development of the Swap arket
As international barriers to financial markets be$an to disa##ear" s,a# dealers ,ere able to s,itch bet,een different inde%es and different markets. By ar!itraging ca#ital and credit markets" they ,ere able to borro, at the best inde% a!ailable and then s,a# to the desired inde%. +ea!y borro,in$ by the D2 $o!ernment and $o!ernment a$encies in the ;:=s #layed a ma
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Takin$ a !ie, on the future direction of the interest rates" s,a#s can be #ro!ed to !ery attracti!e instrument" and under a !ariety of yield cur!e conditions" they are amon$ the chea#est to transact. 2#eculati!e tradin$ of the s,a#s added enormously to the de#th and li'uidity of the market.
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<% A BRIEF LOOK AT T;E /LOBAL MARKETS
After the first s,a# in )>:)" the interest rate s,a# market has e%#loded. -n )>>:" the annual turno!er" in terms of notional #rinci#al" is around 45 trillion. The market is re$ulated by the local le!el e%chan$es" ,hich to$ether form the -nternational 2,a# and /eri!ati!es Association (-2/A*. -2/A has set for the $uidelines and the re$ulatory frame,ork" and most of the local re$ulations are based on these. -2/A has about )=6 members" and it #ublishes re$ular statistics about the markets. -t also holds conferences and s#reads a,areness of the instruments. -2/A has contributed si$nificantly to the standardi&ation and documentation of s,a#s and conse'uently" their acce#tance in financial markets. The -2/A Master /ocument is used to record s,a#s. Most of the -R2 deals are #e$$ed to the si% month @-BOR. The 'uotations for the fi%ed rate are normally in terms of basis #oints o!er the D2 Tbill rates. Most s,a#s are of duration of 5 to 8 years" ,ith s,a#s as lon$ as )7 years also ha!in$ been recorded. -R2 are mature #roducts" and there are ,idely acce#ted theories and research on their #ricin$ and !arious !arieties. Most #layers ha!e ade'uate systems and e%#osure limits to internally control their risk mana$ement. Ne, forms of s,a#s kee# on emer$in$" and then" theories for #ricin$ them also follo,. radually small banks and cor#orates ha!e also realised the usefulness of s,a#s as hed$in$ instruments" and their use is still increasin$. For the last 7 years" the turno!er for -R2 has been increasin$ by about 574=C annually.
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-t must also be noted that more than :=C of the deals are s#eculati!e in nature" and this ,ill continue to be the case in the future in ,orld markets. 2,a#s in currencies other than D2/ ha!e $radually come of a$e" and no," form substantial #art of the total s,a# market.
,RESENT S&ENARIO OF T;E IN+IAN MARKET
<%$ /enesis of the Interest R!te Sw!4s in Indi! -nterest rates in -ndia ha!e been RB- determined for decades no,. -n the #ast fi!e years" ,e ha!e seen this situation chan$in$. radually" -ndia is mo!in$ to,ards a market determined interest rate re$ime. RB- is $radually freein$ interest rates" and this has forced banks to mana$e risks on their o,n. Moreo!er" the -ndian com#anies ,ere used to the earlier easy $o a##roach and surety in interest rates that they can borro, on. But no," cor#orates ha!e a #lethora of rates at ,hich they can borro,. They ha!e the o#tion of loans linked to fi%ed or floatin$ rates. Thus" -ndian com#anies ha!e to be self sufficient ,ith re$ards to mana$ement of financial uncertainties" like firms are else,here in the ,orld. ?ith all this dere$ulation and inte$ration ,ith $lobal #ractices" there ,as a felt need for instruments to hed$e a$ainst !arious risks. /eri!ati!es for the money market ,ere the ne%t lo$ical ste# in the #rocess. This is e%actly ,hat RB- has done. The RB- o!ernorHs 2tatement on QMidTerm Re!ie, of Monetary and redit 0olicy for )>>:>>H announced on Octoer (D $<<3" indicated that to
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further dee#enin$ the money market and to enable banks" #rimary dealers (0/s* and all-ndia financial institutions (F-s* to hed$e interest risks" the RB- had decided to create an en!ironment that ,ould fa!our the introduction of -nterest Rate 2,a#s. Accordin$ly" on Gu# 1 $<<< RB- issued final $uidelines to introduce -R2 and For,ard Rate A$reements (FRAs*. The #layers are allo,ed to #ractice -R21FRAs as a #roduct for their o,n balance sheet mana$ement and for market makin$ #ur#oses. The RB- has been criticised for bein$ hasty in introducin$ such interest rate deri!ati!es. -t ,as said that our debt market is not mature enou$h to incor#orate and deal ,ith such #roducts. Thou$h the -ndian debt market has not been #ro#erly de!elo#ed" blamin$ the RB- mo!e does not seem to be #ro#er because these #roducts ,ill ha!e to be introduced sooner or later and the #resent time a##ears to be as $ood a time as any other. Moreo!er" this mo!e may also hel# in 'uickenin$ the de!elo#ment of a mature debt and money market.
<%' The Le8!# Fr!mewor": RBI /uide#ines 6Summ!r7
A brief summary of RB- $uidelines re$ardin$ -R2 issued on uly 9" )>>> follo,s Interest rate swap refers to a financial contract bet,een t,o #arties
e%chan$in$ a stream of interest #ayments for a notional #rinci#al amount on multi#le occasions durin$ a s#ecified #eriod.
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Forward rate agreement (FRA* is bein$ defined as the same on settlement
date for a s#ecified #eriod from start date to maturity date.
"he players 2cheduled commercial banks e%cludin$ re$ional rural banks"
#rimary dealers (0/s* and all-ndia financial institutions ha!e been allo,ed to undertake -R2 as a #roduct of their o,n asset liability mana$ement and marketmakin$ #ur#oses.
"ypes Banks10/s1F-s undertake different ty#es of #lain !anilla FRAs1-R2
for interest rate risks arisin$ on account of lendin$s or borro,in$s made at fi%ed or !ariable interest rates. +o,e!er" s,a#s ha!in$ e%#licit1im#licit o#tion features like ca#s" floors or collars are not #ermitted.
#enchmark rate The #layers can use any domestic money or de!t market
rates as reference rate for enterin$ into FRA1-R2" #ro!ided methodolo$y of com#utin$ the rate is ob
Si$e of the notional principal amount There ,ill be no limit on the
ma%imum or minimum si&e of the notional #rinci#al amounts of FRAs1-R2 or the tenor of the -R21FRAs. Re$ardin$ the e%#osure limits the banks" F-s and 0/s ha!e to arri!e at the credit e'ui!alent amount for the #ur#ose of reckonin$ e%#osure to a counter#arty.
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E%posure The e%#osure should be ,ithin the sub limits and this should be
fi%ed for the FRAs1-R2 to cor#orates1F-s" banks10/s by the #artici#ants concerned. -n case of the banks and the F-s" the credit e%#osure should be ,ithin the sin$le1$rou# borro,er limits as #rescribed by the RB-.
<%(
Trends in Indi!n M!r"ets
Before comin$ to the actual trends in the market" let us look at the #layers. Most of the acti!e #artici#ation is by forei$n banks" follo,ed by -ndian banks" cor#orates and finally" F-Hs. The absence of nationalised banks from the -R2 scene is note,orthy.
-R2 today can be used by cor#orates only for an actual hed$in$ e%ercise" and it has to ha!e board #ermission. Moreo!er" the deal ,ould be ,ithin the e%#osure limits of that firm for the bank ,ith ,hich it is dealin$. These measures are to ensure that cor#orates do not undertake s#eculati!e acti!ities" and start dealin$ only after they ha!e #ro#er riskmana$ement systems in #lace.
On the first day of tradin$" more than 4= deals ,ere recorded" ,orth o!er Rs" 8== crores in notional #rinci#al terms. Rs. 7== crores of this ,as accounted for by cor#orate deals. The rush ,as because the Euro#ean and #ri!ate banks ,anted to be a #art of the history" dealin$ on first day" rather than actual hed$in$. -t has also been re#orted that some deals ,ere circular bet,een
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three #layers" ,ith no real effect in any #layersH #osition. No deal ,as stuck for more than a yearHs tenor. Since the first day" there ha!e been almost no deals" and the markets are
cold. The reasons for this are many. At the short term le!el" almost all the #layers e%#ect the interest rates to $o do,n in the ne%t fe, months. This means that there are no conflictin$ !ie,s amon$ #layers about interest rates" and so -R2 deals are not !ery tem#tin$. A$ain" there are !ery fe, floatin$ rate loans around. These and other fundamental reasons ha!e been discussed in the ne%t section.
-n s#ite of these" there are many underlyin$ reasons for going for IRS . Today" the ma
or#orates ,ould also like to hed$e their interest rate risks" and con!ert their fi%ed rate loans to floatin$ rates" no, that the o#tions are a!ailable.
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+o,e!er" their needs ,ould be medium term in nature (5 to : years*" and as yet there are no takers for these lon$ maturities.
The market is only about 5 months old no," and is yet to e!ol!e. The likely #roblems in its e!olution and the future are discussed in the follo,in$ sections.
$D% OBSTA&LES TO +E.ELO,MENT OF IRS IN IN+IA ?hen ,e talk of -R2" ,e are actually referrin$ to deri!ati!es based on underlyin$ instruments" ,hich are linked to interest rates. No," for a $ood deri!ati!es market for any underlyin$ instrument" the market for that instrument should be ,ell de!elo#ed" mature and com#etiti!e. +o,e!er" in -ndia" ,e do not ha!e a !ery mature and com#etiti!e money market" es#ecially the term money market and the floatin$ rate loan market. Thus" the deri!ati!es based on these instruments are bound to be far and fe,. Moreo!er" -ndia does not e!en ha!e a !ery $ood interbank rate measure for different #arties" ,hich are acce#table to all #arties. Then" risk mana$ement systems are almost none%istent in most cor#orate. These and other obstacles in de!elo#ment of the -R2 market ha!e been discussed in $reater detail belo,.
Nona!ailability of an acce#table Benchmark rate
@ack of A /e!elo#ed TermMoney Market
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@ack Of Acti!e Market for Floatin$ Rate @oans
Nona!ailability of a !ariety of acce#table Yield ur!es
0artici#antsH -nertia
@ack Of A,areness
Reluctance on 0art of 2mall or#orates and 2mall Banks
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$$% &ON&LUSION The -ndian money market ,as controlled by ti$ht controls and administered interest rate structure u# to late )>:=s. +o,e!er" follo,in$ the #olicy measures durin$ the early )>>=s the money market has become broad based ,ith the enlar$ement of #artici#ants and instruments" and chan$e in li'uidated conditions is 'uickly transmitted. The reform measures ha!e $reatly contributed to the de!elo#ment of interlinka$es increasin$ li'uidity across !arious se$ments of the money market. An enablin$ en!ironment has thus been created ,hereby the monetary authority can $radually s,itch a,ay from the direct instruments of control to indirect methods like o#en market o#eration" includin$ re#os. The market determined interest rate is $radually emer$in$ as an im#ortant intermediate tar$et ,ith the ultimate ob
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,hether a$riculture or industry" ,hereas banks and financial institution are flush ,ith funds. -n our dualistic economy ,here the rural sector dominates" money market reform should start from reor$anisin$ rural financial structure so that funds can sufficiently flo, to the ,ider acti!ities. -n doin$ this $o!ernment has im#ortant role of re$ulation and redirection of financial institutions under liberalisation.
)5. Su88estions Fe, su$$estions rele!ant to the de!elo#ment of money market in -ndia
are enumerated belo,
(i*
There should be a mechanism to make the call ran$e bound ,hich may reduce uncertainty and #ro!ide confidence to the bankers for lendin$1borro,in$. -n the conte%t" it
is
em#hasi&ed that Re#os and Re!erse Re#os conducted by RBhas the #otential to set the floor and ceilin$ in the call money market.
(ii*
Besides" Re#o mechanism" call money market" needs to be su##lemented by O#en Market O#eration (OMO*. OMO can influence interest rate as ,ell as !olumes in the market.
86
T.Y.BFM
MONEY MARKET
(iii*
Nonbank se$ment should be brou$ht under the same re$ulation on #ar ,ith the banks early as #ossible so that le!el #layin$ field is created.
(i!*
Trans#arency should be ensured in money market transaction. There should be screen based tradin$ ,ith t,o ,ay 'uotes for each money market instruments.
(!*
The lockin #eriod of /s and 0s should be com#letely remo!ed in a #hase manner.
(!i*
Retailin$ of
$o!ernment #a#ers should be encoura$ed. The
#rimary dealers can #lay a role in this conte%t.
(!ii* urrently F--s are allo,ed in $o!ernment dated securities in #rimary as ,ell as secondary market. More F-- #artici#ation could be encoura$ed.
(!iii* Money Market Mutual Funds should be set u# by !arious banks and institutions. This ,ould increase the retail #artici#ation in the market.
87
T.Y.BFM
MONEY MARKET
BIBLIO/RA,;Y
2ODRE ). -nterest Rate 2,a#s 5. Emer$in$ Money Market 4. -ndian Money Market 2tructure" o#eration and
ADT+OR Nasser 2aber R.2. A$$ra,al M.2. o#alan
/e!elo#ment
6. Financial Mana$ement
0rasanna handra
7. ,,,.stcionline.com 8. ,,,.rbi.or$.in 9. oo$le
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