The instruments traded (media of exchange) in the capital market are:
- Debt Instruments. A debt instrument is used by either companies or governments to generate funds for capital-intensive projects.
- Equities (also called Common Stock)
- Preference Shares.
- Derivatives.
The Reserve Bank of India issues guidelines to regulate the money market instruments by addressing the eligible market participants accounting for Certificate of Deposits, Treasury bills, call or notice money market, commercial paper and non-convertible debentures with a maturity of up to 1 year.
RBI regulates money markets & G-secs; while SEBI regulates the Corporate debt market & bond markets. The domestic debt market in India amounts to about 67% of GDP while the size of India's corporate bond market is a mere 16% of GDP — compared with 46% in Malaysia, and 73% in South Korea.
The money market is the trade in short-term debt. The capital market encompasses the trade in both stocks and bonds. These are long-term assets bought by financial institutions, professional brokers, and individual investors.
The Reserve Bank regulates money markets, Government Securities (G-Sec) market, foreign exchange (Forex) market and the markets for derivatives on interest rate, currency and credit derivatives. These markets have evolved in last 10-15 years in terms of participation, liquidity and venues of trading etc.
Key Takeaways. The money market is part of the fixed-income market that specializes in short-term government debt securities that mature in less than one year. Buying a bond means giving the issuer a loan for a set duration; the issuer pays a predetermined interest rate at set intervals until the bond matures.
In 2016, the Securities and Exchange Commission (SEC) implemented reforms to enhance the stability of money market funds and to reduce investor risks. As a means of preventing a run on a fund, the regulations require money market fund providers to institute liquidity fees and suspension gates.
While it is an extremely efficient arena for businesses, governments, banks, and other large institutions to transact funds, the money market also provides an important service to individuals who want to invest smaller amounts while enjoying the best liquidity and safety found anywhere.
Financial Regulators: Who They Are and What They Do
- The Federal Reserve Board.
- Office of the Comptroller of the Currency.
- Federal Deposit Insurance Corporation.
- Office of Thrift Supervision.
- CFTC.
- FINRA.
- State Bank Regulators.
- State Insurance Regulators.
The FDIC is the primary federal regulator of banks that are chartered by the states that do not join the Federal Reserve System. In addition, the FDIC is the back-up supervisor for the remaining insured banks and savings associations.
This Federal agency could be the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) or the Federal Reserve. Depending on a how a bank is structured, they may have one or more charters, which also means they may have one or more regulator.
Which bank is not regulated by RBI?
- a. State Bank of Sikkim.
- b. State Bank of Travancore.
- c. IDBI.
- d. Axis.
- State Bank of Sikkim is not regulated by Reserve Bank of India unlike other banks in India. State Bank of Sikkim is a state-owned banking institution headquartered at Gangtok, Sikkim, India.
For national banks, the primary regulator is the Comptroller of the Currency. State-chartered banks and bank holding companies initially report to the Federal Reserve Board. State banks answer to the banking departments of their respective states.
Regulators of North Carolina, (1764–71), in American colonial history, vigilance society dedicated to fighting exorbitant legal fees and the corruption of appointed officials in the frontier counties of North Carolina.
State-chartered banks may ultimately decide to refrain from membership under the Fed because regulation can be less onerous based on state laws and under the Federal Deposit Insurance Corporation (FDIC), which oversees non-member banks. Other examples of non-member banks include the Bank of the West and GMC Bank.
What happens if regulatory policies for a business are violated? Fines and sanctions are applied. Both create and enforce regulations.
The primary regulatory purpose is defined as the achievement of quality control of a subject system, its process or its product. Quality control via regulation is achieved through one or a combination of approaches: (1) accountability, (2) organizational development, (3) protectionism.
A regulator is a mechanism or device that controls something such as pressure, temperature, or fluid flow. A regulator is a mechanism or device that controls something such as pressure, temperature, or fluid flow.
Key Takeaways. Financial regulations protect consumers' investments. Regulations prevent financial fraud and limit the risks financial institutions can take with their investors' money. Financial regulators oversee three main financial sectors: banking, financial markets, and consumers.
Successful financial regulation prevents market failure, promotes macroeconomic stability, protects investors, and mitigates the effects of financial failures on the real economy. Financial regulation can also be used to improve market transparency and to protect investors.
The Securities and Exchange Commission (SEC) regulates the securities markets and is tasked with protecting investors against mismanagement and fraud. Ideally, these types of regulations also encourage more investment and help protect the stability of financial services companies.
Regulatory oversight is a crucial ingredient of effective regulatory frameworks. It helps bridge the gap between formal requirements for regulatory policy and the implementation of better regulation efforts in practice.
Following are the types of Money Market Instruments:
- Promissory Note: A promissory note is one of the earliest type of bills.
- Bills of exchange or commercial bills.
- Treasury Bills (T-Bills)
- Call and Notice Money.
- Inter-bank Term Market.
- Commercial Papers (CPs)
- Certificate of Deposits ( CD's )
- Banker's Acceptance (BA)
There are several money market instruments in most Western countries, including treasury bills, commercial paper, banker's acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- and asset-backed securities.
The money market provides financing to local and international traders who are in urgent need of short-term funds. It provides a facility to discount bills of exchange, and this provides immediate financing to pay for goods and services. International traders benefit from the acceptance houses and discount markets.
Capital Market is a market for medium and long-term financial securities and instruments. It is a market where financial securities like bonds, stocks and so on are bought and sold. Both individuals and institutions are participants in the Capital Markets. Capital Market puts surplus funds to productive use.
Treasury bills, repurchase agreement and commercial paper all are short term investments and have a maturity level of less than one year. Hence, shares and bonds having maturity of more than one year are not considered as money market instrument.
Thus two components of money supply are:- (i) currency (Paper notes and coins). (ii) Demand deposits of commercial banks.
What is the Interbank Call Money Market? The interbank call money market is a short-term money market which allows for large financial institutions, such as banks, mutual funds, and corporations, to borrow and lend money at interbank rates, the rate of interest that banks charge when they borrow funds from each other.
Features of the Indian Money Market:
- Components of the Money Market:
- Indigenous Markets:
- Rates of Interest:
- Volatile Call Money Market:
- Organized and Unorganized Sectors:
- Busy and Slack Seasons:
- Dominance of Government Securities:
- Underdeveloped Bill Market:
