Money market is a market for short term sources of finance. The short term finance will be utilised by the business enterprises as a working capital management. We know the importance of working capital management. The goodwill of a firm depends upon its prompt payments in the business aspects.
Some of the important developments pertaining to the money market are: First, with a view to transforming the call/notice money market into a pure inter-bank market with participation of banks and primary dealers (PDs) only, non-bank participants have been completely fazed out of the call money market. Second, several new financial instruments have been introduced. A full-fledged Liquidity Adjustment Facility with a view to modulating short-term liquidity under diverse market conditions has replaced the traditional refinance support on fixed terms. Third, measures have also been taken to make various other money market instruments (such as CDs, CPs, etc.) freely accessible to non-bank participants. These measures were intended to improve the depth of as well as the efficiency and transparency of operations in the money market. Fourth, as part of the development of new instruments, a major initiative pertains to Collateralized Borrowing and Lending Obligation (CBLO), which was operationalised as a money market instrument. Efforts towards development of the Government securities market have focused on three areas: institutional measures, innovations through instruments, and enabling market development measures. Major developments in Government securities market include: establishment of a Delivery versus Payment system to reduce settlement risk; institution of the system of Primary Dealers to strengthen market intermediation; formation of market bodies such as Fixed Income Money Market and Derivatives Association of India (FIMMDA), and Primary Dealers Association of India (PDAI) to improve practices;
• Permission to Foreign Institutional Investors to invest in Government securities in both the primary and secondary markets, with a view to broaden the markets;
• Operationalization of the Negotiated Dealing System (NDS); and the announcement of an indicative auction calendar for Treasury Bills and dated securities,
• To help investors plan their investment better and to enhance transparency and stability in the Government securities market.
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