Page 51 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes

Task Do a research and list all the instruments of money market in India.

Self Assessment

Fill in the blanks:

1. ………………..refers to a transaction in which a participant acquires fund immediately by
selling securities and simultaneously agreeing for repurchase of the same or similar
securities after specified period of time at a given price.
2. Banks and …………………are allowed to undertake both repo/reverse repo transactions.
3. The maximum amount that can be issued by issue of CP will be …………… of fund-based
working capital.
4. ………………………is an instrument used in the Indian money market to finance the
movement and storage of agricultural and industrial goods in domestic and foreign trade.

5. …………………….plays a vital role in cash management of the government.
6. Maturity period of call loans varies between one day to a ……………….while notice
money deals in funds for…………………...

7. Money market provides an effective low cost source of ……………………funds.
8. ………………………….and flexibility are the hallmark of the money market.
9. ………………….assets are characterised by their liquidity, high marketability and low
risk.
10. Under ………………………………….banks were permitted to issue derivative usance
promissory note for a period not exceeding 90 days under the strength of underlying bills.

True or False:
11. Money market, as noted earlier, is a market for short-term funds and covers money and
financial assets that are close substitutes for money.

12. Money market typically trades in short-term securities having an original maturity of one
year or less.
13. Money market securities are used to 'warehouse' funds until needed. The returns earned
in these investments are low due to their low risk and high liquidity.
14. Acceptance houses perform the function of discounting/rediscounting the commercial
bills and T-Bills.
15. Discount houses are specialized agencies which accept the bills of exchange on behalf of
their clients for a commission.

3.9 Summary

 A financial market is a market where variety of financial assets are traded directly or
indirectly to cater to the diverse saving notions of the savers and numerous investment
preferences of the investors, and where financial institutions buy the financial claims of
those who have surplus funds and sell their own claims.

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