Financial Markets

Important things to know:

• Private placement is same as preferential placement.
  Market value in Private placement is determined through negotiation between the company and the investors under the guidance of SEBI.\
• OTCEI is non functional.
• Protective function of SEBI given in the new NCERT.
• Every Friday – RBI statement is prepared. If balance
  <>Call Rate- Rate of interest paid on call money loans. (Inter bank Rate).
• PLR (Primary lending rate) Rate of interest at which banks primarily lend loans(depends on risk)
• REPO Rate – Rate of interest at which RBI repurchases the central government’s, dated (date of maturity is mentioned on it), securities through auction. It was introduced in 1992. Banks do this to improve their liquidity.
• Reverse REPO Rate – Rate of interest at which RBI sells dated central government securities through auction.
• SLR (statutory liquidity ratio) Proportion of time deposits into liquid assets.
• Bank rate – rate of interest at which RBI rediscounts the bills of commercial banks. (Short term loans).

Money market instruments

1. Treasury Bills (T-Bills)

• Meaning These are short term promissory notes which are issued by RBI on behalf of the government of India at a discount.
• Use These are used to meet short term requirements of funds.
• Period They are issued for a period of 14-365 days.
• Amount They are issued for a minimum amount of Rs.25000 and in multiples thereof.
• Negotiability These are freely negotiable instrument and are transferred by endorsement or by delivery.
• Safety These are considered to be safe.
  
  

2. Commercial Papers (CP)

• Meaning These are unsecured promissory notes which are issued by a corporate with a fixed maturity period.
• Use These are used to raise short term funds at a lower rate than the market rate.
• Period They are issued for a period of 15days to one year.
• Negotiability These are freely negotiable instrument and are transferred by endorsement or by delivery.
• Safety These are not safe and so issued by sound reputed corporate enterprises.

CP may also be issued to meet the floatation costs. this is known as Bridge Financing.

3. Call Money

• Meaning it is a short term finance repayable on demand, which is used for inter bank transfer.
• Use These are used to provide for temporary shortages of cash to maintain cash reserve ratio and to meet unforeseen demand of funds.
• Period They are issued for a period ranging from 1 to 15 days.
• Amount it is basically over the phone market which is use by banks to fulfill their temporary shortages of cash. The banks which have surplus cash are usually the lenders.
• Negotiability These are freely negotiable instrument and are transferred by endorsement or by delivery.

4.Certificate of Deposit (CD)

• Meaning These are short term unsecured negotiable instruments in a bearer form, issued by commercial banks and financial institutions.
• Use These are used to meet mobilize large amount of money for short periods.
• Period They are issued for a period of 14-365 days.
• Negotiability These are freely negotiable instrument and are transferred by endorsement or by delivery.
• Safety These are considered to be safe.

5. Commercial Bills

• Meaning A bill of exchange is an instrument in writing containing an unconditional order signed by the maker directing a certain person to pay a certain sum of money.
• Period They are issued for a period of 90days.
• Negotiability These are freely negotiable instrument and are transferred by endorsement or by delivery.
• Liquidity Although they are self liquidating as the drawee is to honor them on the date of maturity, yet these can be discounted with the bank before the date of maturity.