While buying the securities, the RBI credits the Current A/c of the bank and debits the SGL A/c. While selling securities to banks, RBI debits the Current A/c of the concerned bank and credits its SGL A/c. The discount rate on 91-day TB is the benchmark interest rate for money market, risk-free interest rate for investment analysis and pricing of futures contract in the derivatives of stock markets.īanks maintain two types of accounts with the RBI: Current A/c for cash operations and Subsidiary General Ledger A/c (SGL) for securities. (DFHI), and a ready market in National Stock Exchange. There is also a high level of liquidity in terms of refinance from Discount and Finance House of India Ltd. Corporates also park their funds in TBs because there is no risk of default (issued by the Govt., through RBI). In addition, it is also used for the repo operation of the central bank. The TBs are eligible securities for maintenance of statutory liquidity ratio of banks. The banks which quote the lowest discount to the face value are sold the TBs. The RBI sells the TBs by auction to banks and others. However, the 91 day TB’s discount rate is the benchmark interest rate for the money market. The RBI introduced different tenures at different points of time. The tenure is 14 days, 91 days, 182 days or 364 days. Though CP has been in existence in the US for more than 100 years, it made its appearance in other countries only after 1980.Įligible participants to invest are the banks, insurance companies like LIC, GIC etc., NABARD and UTI, corporates and Foreign Institutional Investors (FII). It is issued by well-established joint stock companies to raise working capital. Commercial Paper:ĬP is a short-term unsecured promissory note issued by well-established corporates with the requisite credit rating. Money Market Instruments in India Money Market Instruments in India – Commercial Paper, Treasury Bills, Certificate of Deposit and Primary Dealers in Government Securities Money Market Instrument # 1. Collateralized Borrowing and Lending Obligation (CBLO) 10.
Primary Dealers in Government Securities 5. Some of the money market instruments are:-ġ. It is the place where short-term surplus funds at the disposal of financial institutions and individuals are borrowed by individuals, institutions and also by the Government. It meets the short-term requirements of borrowers and provides liquidity or cash to lenders.
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