Best 5 Money Market Instruments


Money Market Instruments basically dealt with short term securities in the money market. These instruments are highly liquid with a very short maturity period. It is very crucial for business as there is always a need for short-term cash for utilization. Here, I have explained the main money market instruments.

  1. Certificates of Deposits:

Certificates of deposits are a protected type of deposits. Cash must remain in the bank for a specific time allotment to acquire a guaranteed return. Certificate of deposits is negotiable currency instruments. They are issued in a dematerialized form by business banks and money related establishments at a discount to face value up to 1 year. Banks can issue a declaration of a certificate of deposits for up to 3 years. These deposits are issued under the Indian Negotiable Instrument Act 1881. They are for the most issued to people, Corporations, trusts, etc. (At a discount rate of the face value).


  1. Commercial Paper:

It is an unsecured currency instrument utilized by business ventures to fund-raise for a time of up to 1 year. Commercial paper is basically borrowed by corporate, monetary organizations, essential vendors. It is an unsecured instrument issued in the physical structure or demats structure. It was started by RBI in 1990. It empowers the borrowers to address the issues of short term borrowings at reasonable rates. Credit investigation and research Limited give a rating to the members for issuing commercial paper which is easily transferable. The RBI rules are strictly being followed for issuance. The interest and investment in commercial paper are according as far as possible, set by the Securities and Exchange Board of India and can be purchased by people, banking organizations and other corporate bodies.


  1. Treasury Bill

Treasury Bills are short term instruments of the Government of India. The Government of India issues Treasury Bills to meet the necessity for short term borrowings. The T-bills are issued at a discount rate with a maturity period up to 1 year. It very well may be bought by banks, essential vendors, state government, money related establishments, etc as a speculator through the secondary market. It can be bought at the sale where the cost is fixed through a focused offering process at a standard rate. For instance, a financial specialist purchases treasury bill for $100 face value at a discount for $90. In this way, he gains $10 on the bill as a profit because the value will be $100 on the date of maturity.


  1. Call/Notice/Term Money


Call money is a showcase where cash is acquired or loaned on interest and has a development running between one day and 1/2 weeks. The principal motive behind the call market and currency market is to encourage the business banks to cross over any barrier of the shortage of assets to meet the abrupt assets out of substantial surges and to satisfy the prerequisites of RBI, for example, cash reserve ratio. The distinction between call money, notice money and term money can be seen at the time of development of the acquired cash i.e. Acquisition date to the maturity date. The maturity date of call money is shorter compared to notice and term money.


  1. Repurchase Agreement


A repurchase is also called as repo, is a type of short term borrowing for the most part in government securities. It is a momentary acquiring where one person who offers the security consents to repurchase it in the future. The securities for Repo exchanges are approved by the government. The exchange is a Repo for the seller as he consents to repurchase it at a predefined date and rate, whereas it is a reverse repo for the buyer as he is consenting to purchase the security now and deals it in future.

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