Sunitha.S Assistant Professor School of Management Studies, National Institute of Technology (NIT) Calicut MONETARY ECONOMICS: Financial System

2 Financial System Financial institutions  Commercial banks, RBI, NBFIs, companies Financial Assets  Currency, deposits, cheques, bills, bonds, shares,  Equities, debentures, T-bills, certificates of deposits, commercial papers Financial markets  Money market (short term funds)  Capital market (medium & long term funds) Primary Market (New Issue Market) Secondary Market (Stock Market)

3 Money Market

4 Market in which short term funds are borrowed and lent are called as money market. Call Money Market Commercial Bill Market Treasury Bill Market Certificate of Deposit Commercial Paper Submarkets

5 Call Money Market Deals with one day loans (called as call loans or call money) Who are the Participants?  usually banks borrowers are banks who are temporarily short of funds Suppliers are banks with temporary excess of cash

6 Commercial Bill market Bill of Exchange (BOE) is like a promissory note,which has a maturity period of 3 months. “I owe you so and so amount of money after 3 months from the present date.” Either the BOE holder could wait till it gets matured or get it discounted or get encashed through the process of discounting

7 Treasury Bill market T Bills are short term debt instruments issued by the Govt to get funds. Who are the participants?  Borrowers: mostly commercial banks  Lender: Govt departments Sold by RBI through auction Maturity: 91days,182 days,365 days Zero default risk and hence more safer

8 Certificate of Deposit (CD) Debt instruments sold by banks & other depository institutions Borrowed mainly by banks

9 Commercial Paper(CP) Direct short term finance issued by large creditworthy companies Borrowed by banks, companies Maturity : 3 months

10 Thank You