Money Market Instruments

  • Treasury Bill: 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 issued by the Reserve Bank of India on behalf of the Central Government to meet its short-term requirement of funds.
  • Commercial Paper: It is a short-term 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.
  • Call Money: It is short term finance repayable on demand, with a maturity period of one day (more than 1 day up to 14 days it is called as notice money.), used for inter-bank transactions. Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid on call money loans is known as the call rate. It is a highly volatile rate that varies from day-to-day and sometimes even from hour-to-hour.
  • Certificate of Deposit: It is negotiable, short-term instruments in bearer form, issued by commercial banks and development financial institutions. They can be issued to individuals, corporations, and companies during periods of tight liquidity when the deposit growth of banks is slow but the demand for credit is high.
  • Commercial Bill: It is a bill of exchange used to finance the working capital requirements of business firms. It is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.

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