Essay On Money Market

1230 Words5 Pages
Emerging Economies Selected: India and China
Money Market
1. India
It is a market where short-term funds with maturity ranging from overnight to one year in India which are close substitutes of money even the financial instruments. It had diversified from conventional platform of treasury bills and call money to commercial paper, certificates of deposit, repos, forward rate agreements and most recently interest rate swaps.
“The money market fulfils the borrowing and investment requirements of providers and users of short-term funds, and balances the demand for and supply of short-term funds by providing an equilibrium mechanism” (Money Market in India, 2017). It serves as a mechanism through which central bank's intervention in the
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Commercial Paper
“It is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities.” Maturities on commercial paper is usually below one year. It’s issued at a discount from face value and shows market interest rates. It has collateral and so it is unsecured. It is usually issued by firms which have high credit rating.
It was introduced in India in 1990 and it is issued in the form of promissory note. “It was introduced in India with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors” (Singhania, Singh, & Prajapat, 2016). “Subsequently, primary dealers and all-India financial institutions were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations” (Singhania, Singh, & Prajapat, 2016).

“In an effort to promote the direct funding of corporations, improve the liquidity of the shortened of the interest rate market and foster a more responsive pricing of credit risk, in May 2005 the PBoC allowed non-financial firms to issue commercial paper (CP)” ("BRICs and Beyond", 2007). At End-September 2006, this segment of the market was already worth ($33bn, or 1.3% of GDP), representing just over half of all non-bank corporate interest-bearing liabilities and nearly 5% of the total market.
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