Treasury Management (Finance)

Unit 2

Unit 2

Financial Markets The Money Market

Structure:
2.1 Introduction
Objectives
2.2 Money Market
Characteristics and Participants
Purposes of Money Market
Organised and Unorganised Money Markets
Call money market
2.3 Money Market Instruments
Treasury bills (T-Bills)
Commercial papers (CPs)
Certificate of deposits (CDs)
Bills of exchange
Repo & reverse repos
2.4 Collateralised Borrowing and Lending Obligations (CBLO)
2.5 Regulation of Money Market
2.6 Summary
2.7 Glossary
2.8 Terminal Questions
2.9 Answers
2.10 Case Study

2.1 Introduction
In the previous unit, you were introduced to Treasury Management as a
specialist subject. You read about the contours of the science of treasury
management as applied in corporate houses. In this unit, we explore money
market, which plays an important role in treasury management.
Financial markets are places for trading of financial instruments. There are
two types of financial markets: money market and capital market.
Capital market is where securities issued by corporate and governments
are traded.
Money market is where short term cash needs of companies and
government are met using money market instruments. Almost all
financial institutions trade in money market instruments.
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In this unit, you will get familiar with instruments in the money market and
learn how money markets are regulated.
Objectives:
After studying this unit you should be able to:
describe the features, structures and types of money market instruments
understand money market instruments and list different types of
instruments
explain the structure of repo and reverse repo transaction
discuss collateralised borrowing and lending obligations
examine how money market is regulated

2.2 Money Market

2.2.1 Characteristics and Participants
According to Reserve Bank of India (RBI), money market is the centre for
dealings, mainly of short-term character, in money assets; it meets the
short-term requirements of borrowers and provides liquidity or cash to the
lenders. It is the place where short-term surplus investible funds, at the
disposal of financial and other institutions and individuals, are bid by the
borrowers, again comprising institutions and the government itself. Money
market is a market for short-term borrowing and lending of funds. Short-term
refers to a period of less than one year.
Money market facilitates quick transactions of large amounts between
business corporations, government agencies, banks etc. in the short term.
Example A company has cash balances far in excess of its transaction
requirements. It can invest this in the money market for short periods and
take it back when a necessity arises.
The participants in money market are the financial intermediaries such as
money brokers, large business corporates, commercial banks and the RBI.
RBI plays an important role in the Indian money market. It modifies liquidity
of the financial institutions, influencing availability and cost of money in the
market.
Some characteristics of the Indian money market are:
It is a market for instruments with less than 1 year maturity.
Interest rates are based on demand for and supply of funds.
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The parties mutually agree on the tenure, rate and terms.

Money market operations are regulated by RBI.
The players in the money market are commercial banks, private firms
and the government.

2.2.2 Purposes of money market

Money market serves these purposes:
Maintain equilibrium between demand and supply of short-term funds
Act as bellwether for RBI intervention to regulate liquidity in the
economy.
Provide access to users of short-term funds to borrow and invest at
efficient market prices.
2.2.3 Organised and Unorganised money markets
The organised money market in India consists of the RBI, nationalised,
scheduled and non-scheduled commercial banks and foreign banks. RBI
regulates the entire banking sector in India. Non-banking financial
institutions namely Life Insurance Corporation (LIC), General Insurance
Corporation (GIC) and its subsidiaries and Unit Trust of India (UTI) operate
indirectly through banks in the market. Surplus funds of quasi-governmental
and other large organisations are also routed through banks.
The unorganised money market comprises unregulated financial
intermediaries, indigenous bankers and private money lenders. People who
borrow in this market include non-corporate and corporate small
businesses.
2.2.4 Call money market
An exclusive segment of money markets is the call money market.
Call money market is a short-term market where financial institutions borrow
and lend money. It is also known as interbank call money market as banks
are the major participants. The day-to-day surplus funds are traded in the
call money market. The maturity of the loans in this market varies between
one day and a fortnight. The loans are repaid on demand of either the
borrower or the lender. The loans in this market often help banks to meet
RBI reserve requirements.
The characteristics of call money market are as follows:
It is a market for short-term funds, also known as money on call.
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It is highly liquid as the funds are repayable on demand.

It is a sensitive segment of financial system.
Changes in the demand and supply for short-term funds get quickly
reflected in the financial system.

In India, call loans are unsecured. Call rates, or the rates of the interest paid
on the call loans are subject to seasonal fluctuations in demand. Intra-day
fluctuations in call rates are also huge and rates can vary every hour.
Call money market is not relevant to corporate entities as they cannot
operate in it.
Self Assessment Questions
1. Money markets are used by organisation that needs to borrow, lend or
invest for the ___________.
2. ___________ is used by the central banks for conducting open market
operations.
3. Unorganised sector comprises indigenous bankers and moneylenders.
(True/False)

2.3 Money Market Instruments

In this section we will discuss the instruments with which operations are
conducted in the money market.
A plethora of money market instruments take care of borrowers' short-term
needs and provide required liquidity to lenders. We will review the following
well-known instruments:
treasury bills
commercial paper
certificate of deposits
bills of exchange
repo and reverse repo
2.3.1 Treasury Bills (T-Bills)
A T-Bill is a promissory note issued by RBI on behalf of Government of India
at a discounted value to meet its short-term requirements. T-Bills are highly
liquid because they are guaranteed by the Central Government and can be
used as claims against the government without any need for acceptance or
endorsement.
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T-Bills are issued in 4 tenures: 14 days, 91 days, 82 days and 364 days
through auctions. Auction amounts and dates are announced by RBI from
time to time. Organisations like Provident Funds, state-run pension funds
and state governments are allowed to participate in the auction, but not bid.
RBI invites bids every fortnight and decides the cut-off rate on the bids.
The fluctuation in the discount rate of T-bills is very low and so is the
transaction cost.
While T-bills are a good choice for reflecting risk-free rate of return,
corporate houses prefer 10-year Government bond rate as the yardstick for
risk-free return while computing their cost of capital threshold. This is
because 10-year Government bond rates, duly adjusted for currency of
issue and the concerned governments economic record, reflect the risk-free
rate of return better than T-bills.
2.3.2 Commercial Paper (CP)
Commercial Paper (CP) was first introduced in January 1990 in India. It is a
short-term unsecured promissory note issued by large corporations in bearer
form on a discount to face value. It meets the corporations short-term need
for funds. The maturity period ranges from 7 days to one year. CP is
negotiable by endorsement and delivery. They are highly liquid as they are
bought back.
CPs are issued in denominations of ` 5 lakh or multiples. Generally CPs
are issued through banks, dealers or brokers and sometimes directly and
bought mostly by commercial banks, non-banking finance companies
(NBFCs) and other corporates. CPs issued in international financial
markets are known as euro-commercial papers.
Salient features:
CP is an unsecured promissory note.
CP can be issued for maturity periods of 7days to a year.

CP is issued in the denomination of ` 5 lakh. The minimum size of an

issue is ` 25 lakh.

The issue size of CP should not exceed the working capital of the
issuing company.

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The investors in CP market are banks, NBFCs, corporates in India and

high-net-worth individuals (HNIs).
The interest rate of CP depends on the prevailing rates in the CP
market, foreign exchange market and call money market.
The eligibility criteria for the companies to issue CP are as follows:
o The tangible worth of the issuing company should not be less than
` 4 crore.
o

The company should have a minimum credit rating of P2 and A2

obtained from Credit Rating Information Services of India (CRISIL)
and Investment Information and Credit Rating Agency of India
Limited. (ICRA) respectively.
o The company must have a sanctioned working capital limit from a
bank or a financial institution and the account must be classified as a
standard asset.
The RBI circular RBI/2011-12/89 IDMD.PCD. 4/14.01.02/ 2011-12
contains the updated regulations re: issue of commercial paper.

Advantages of CP
Negotiable by endorsement and delivery
Higher returns than from risk-free investments
High safety and liquidity CP is believed to be one of the highest quality
investments available in private sector
Flexible instrument that can be issued with varying maturities
CP is a close competitor to T-Bills, but T-Bills have an edge because they
are risk-free and more liquid.
2.3.3 Certificate of Deposits (CDs)
Certificate of deposit (CD) is a short-term instrument issued by scheduled
commercial banks and financial institutions. It is a certificate issued for the
amount deposited in a bank for a specified period at a specified rate of
interest. The concerned bank issues a receipt which is both marketable and
transferable by the holder. The receipts are in bearer form and transferable
by endorsement and delivery.
Basically they are a part of banks deposits; hence they have less risk
associated with repayment. CDs are interest-bearing, maturity-dated
obligations of banks. CDs benefit both the banker and the investor. The
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bankers need not worry about premature cashing of the deposit as the
investor can sell the CDs in the secondary market if she needs cash.
CDs can be issued only by scheduled banks. It is issued at discount to face
value. The discount rate depends on the market conditions. CDs are issued
in the multiples of ` 1 lakh and the minimum size of the issue is ` 1 lakh. The
maturity period ranges from 7 days to one year. There is no restriction on
the discount rate and the bank is free to fix its own rate.
Features of CDs in Indian market
Schedule commercial banks are eligible to issue CDs
Maturity period is from 7 days to one year
Banks are not permitted to buy back their CDs before the maturity or
grant loans against the CDs
CDs are subjected to CRR and Statutory Liquidity Ratio (SLR)
requirements
They are freely transferable by endorsement and delivery. They have no
lock-in period.
CDs have to bear stamp duty at the prevailing rate in the markets
NRIs can subscribe to CDs on repatriation basis
2.3.4 Bills of exchange
A bill of exchange is a financial instrument which is traded in bill market.
According to the Indian Negotiable Instruments Act, 1881 it is a written
instrument containing an unconditional order, signed by the maker directing
a certain person to pay a certain amount of money only to, or to the order of
the bearer of the instrument.
Bills of exchange are drawn by the seller on the buyer for the value of goods
or services delivered by the seller. They are therefore trade bills. They are
negotiable instruments freely transferable by endorsement and delivery and
accepted by banks. The liquidity of bills of exchange is next only to call
loans and T-bills.
Classification of bills of exchange
Broadly there are two kinds of bills of exchange: documentary bills and
Accommodation bills.
Documentary bills of exchange: These bills are accompanied by
documents related to goods such as loading bills, railway receipts or bills of
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lading; or related to performance of services. There are several types of

documentary bills:
Demand bill and Usance bill Demand bill has to be paid immediately
when payment is asked for and there is no waiting period. Usance bill is
a bill of exchange drawn for a specified period of time and becomes
payable when the time specified expires.
In the Indian parlance, documentary bills are known as hundis. The two
types of hundis are darshani (demand bills) and muddati (usance bills).
Inland bill It is drawn in India upon a person residing in India and must
be payable in India.
Foreign bill It is drawn outside India in favour of a person residing
inside or outside India. They are payable both in and outside India.
Supply bill It is a bill made by the supplier to the government or semi
government to get advance payment for the goods supplied to them.
Accommodation bills: An accommodation bill is a bill of exchange which is
accepted and sometimes endorsed without the backing of any trade in
goods or delivery of services. The bill is created on the basis of a fictitious
transaction and is only an accommodation for a person in need of funds.
There was a flourishing trade in huge volumes in accommodation bills a few
decades ago but this has been effectively curbed by regulations prohibiting
it.
2.3.5 Repos and reverse repos
Repo and its structure
Repo is the short form for repurchase. Repo is a money market instrument.
It is a transaction in which a person (seller) sells securities to another
(buyer) with an agreement to repurchase it at a specified date and interest
rate. The transaction is a repo from the viewpoint of the seller. Repos
enable collateralised short-term borrowing or lending through sale or
purchase of debt instruments. The maturity of repos is from 1 day to one
year. For details, refer to draft guidelines issued by RBI in this regard
(http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=2054).

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The structure of repo is shown in the figure 2.1.

Figure 2.1: Structure of Repo Transactions

The important features of Repos are:

Repos have low credit risk as there is collateral and a Subsidiary
General Ledger (SGL) mechanism.
Interest rate risk is low as the period of lending is short.
Low liquidity risk as the seller has surplus funds.
Settlement risk is small because all the transactions are settled through
SGL system and public debt office at RBI.
Repo rate is the annual interest rate for the funds transferred by lender to
borrower. Repo rates are lower than interbank loan rates. The factors
affecting repo rate are credit-worthiness of the borrower and the collateral
loan rates vis--vis rates of other money market instruments.
2.3.5.1 Types of repos

Interbank repos Interbank repos are permitted for eligible instruments

and participants. Central and State government securities and T-Bills
are eligible for repo. In order to participate in repo, banks need to route
their SGL accounts maintained by RBI. Non-bank participants can
participate only in reverse repo which means they can only lend funds to
eligible participants. Non-banking entities having their SGL accounts
with RBI can participate in reverse repo transactions with banks,
Governments and primary dealers (PDs). The phasing out of non-bank
entities from call money market and establishment of Clearing
Corporation has made interbank repo an important component in money
market.

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RBI repos RBI undertakes repo and reverse repo with banks and PDs
as an element of its Open Market operations (OMOs). It also absorbs or
injects liquidity. The introduction of Liquidity Adjustment Facility (LAF)
has led RBI to infuse liquidity into financial system on a daily basis.
Banks and PDs can participate in repo auctions which are conducted
daily except Saturdays. Auctions under LAF have a single repo rate for
all the bidders. Multiple price auctions were introduced subsequently.
The average cut-off yield is released to the public. Cut-off yield along
with cut-off price provides a range for call money market. RBI conducts
repo auctions to provide a channel to manage short-term liquidity for
banks and to stabilise short-term liquidity fluctuations in the money
market.

Reverse repo and its structure

A reverse repo is a transaction of cash in which the lender purchases an
asset from the borrower as a guarantee to get the loan repaid at the agreed
interest on a specific date. It is the same transaction of repo but from the
viewpoint of the lender. In other words, it is a repo transaction for the
borrower, but the same transaction is a reverse repo for the lender. The
structure of a reverse repo transaction is shown in the figure 2.2.

Figure 2.2: Structure of Reverse Repo Transaction

Reverse repo was started to earn additional income on idle cash. The
difference between the rate at which the securities are purchased and sold
is the lenders profit. This transaction has an element of security purchase &
sale as well as money market borrowing/lending. Repos and reverse repos
are used for the following reasons:
To meet shortfall in cash
To increase the returns on funds held
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RBI conducts reverse repo operations under Liquid Adjustment Facility to

prevent sudden spurts in call rates. Repos and reverse repos operations
play an important role in imparting stability to the market.
Activity 1:
The interest rate offered on CDs varies from bank to bank. Refer the
business magazines and analyse the best interest rates offered by the
banks on CDs.
(Hint: Analyse the factors affecting CD rates in section 2.3.3, Also refer
to http://www.yesbank.in/global_indian_banking/yesinvestor.php)
Self Assessment Questions
4. Commercial papers are known as __________ in international markets.
5. ___________ are drawn by the seller on the buyer for the value of
goods delivered by the seller.
6. In reverse repo a party buys a security from another with a commitment
to sell it back to the latter at specified time and price. (True/False)

2.4 Collateralised Borrowing and Lending Obligations (CBLO)

Collateralised Borrowing and Lending Obligations (CBLO) is a product in the
money market launched in 2003 by Clearing Corporation of India Limited
(CCIL). Collateral is a physical security given as a guarantee by a borrower
for participation in the transaction. CBLO provides liquidity to non-banking
entities that have been phased out of call money market or have restrictions
on borrowing/lending transactions in call money market. It is a tripartite repo
in which the borrower deposits his securities with a third party acceptable to
the lender.
CBLO is a repo used in international markets. The third party guarantees
the return of funds from the borrower on the specified date. The third party
sells the securities in the market to repay the funds to lender. In most of the
repo transactions, both the borrower and lender cant unwind the deal
before the due date. In certain cases even if the liquidity condition of the
borrowers improves before the specified date, they cannot unwind repo
deal. Similarly, even the lenders cannot get back their funds until the
maturity date of the repo deal. When lenders need funds, they have to enter

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into a new repo deal or borrow funds. To resolve this problem, CCIL
designed the CBLO to lend or borrow at various maturities.
RBI has prescribed the mode of operations in the CBLO segment. The
minimum order for auction market is ` 50 lakh and in multiples of ` 5 lakh. In
2002 RBI permitted CBLOs developed by Clearing Corporation of India
(CCIL) without any restriction on denomination or lock-in period.
There is a facility to unwind lending and borrowing at prices depending on
the market situation. Since the lenders and borrowers have the flexibility to
unwind the deal at their will, they may have to bear risk of buying CBLOs
with longer maturity period. In auction market, the borrowers will submit their
offers and the lenders will give their bids, specifying the discount rate and
maturity period. The bids and offers are screened from 9.45 am to 1.30
pm on working days.
In normal market, the minimum order lot is fixed at ` 5 lakh and in multiplies
of ` 5 lakh. The members will place their buy/sell orders on the screen
which is opened from 9:30 am to 3.30 pm on all working days. The orders
are selected based on best quotations and negotiations are also allowed.
The borrowers issue the debt instruments under the guarantee of CCIL.
CCIL identifies lenders and borrowers to promote CBLO. It, provides
guarantee, manages the instrument, and acts as a clearing house for
settlement between the purchaser and seller through clearing operations. In
a demanding situation, it also acts as a buyer or seller.
The CBLO members are required to maintain a cash margin with CCIL as a
cover for the exposure obligations during the course of borrowing. The
borrowing members retain the ownership of the securities as the securities
are not transferrable to the lenders. The participants in CBLO transactions
are the members of Negotiated Dealing System (NDS) such as banks,
financial institutions, cooperative banks mutual funds and primary dealers.
The Non-NDS members like cooperative banks, corporates, Non-banking
Financial Companies (NBFCs), pension/provident funds and trusts can
participate by registering themselves as associate members to CBLO
segment. The associate members can participate in normal market to
borrow and lend funds, but not in auction market. The CCIL designates a
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bank and the associate members are required to open a current account for
settlement of funds.
Activity 2:
Visit a financial institution or bank and find out the procedure involved in
obtaining membership of CCIL for CBLO.
(Hint: CBLO procedure is explained in section 3.4. Also refer to
http://www.ccilindia.com/faq.aspx?subsectionid=44#147)
Self
7.
8.
9.

Assessment Questions
_________ was launched by the Clearing Corporation of India Limited.
___________ identifies lenders and borrowers to promote CBLO.
Collateral means a physical security given as a guarantee by a
borrower for participation in the transactions. (True/False)

2.5 Regulation of Money Market

The regulatory bodies of financial markets in India are RBI for the money
market and Securities and Exchange Board of India (SEBI) for capital
markets. Money market comes under the direct purview of RBI.
Regulation of money market is essential to effectively prevent liquidity
mismatch in the system and to transmit policy changes to the other parts of
the financial system. During the global financial crisis in 2008-09, policy
initiatives were attempted for smooth functioning of money market. The
sustained availability of liquidity helped in handling stress levels in market
segments. Growth and stabilisation of markets in 2009-10 has led to certain
regulatory measures. They were aimed at improving transparency,
expanding the markets and promoting liquidity. Some of the regulatory
measures of RBI are as follows:

Reporting platform for CDs and CPs RBI introduced a reporting

platform to promote secondary market for CDs and CPs. The reporting
platform is operated by Fixed Income Money Market and Derivatives
Association of India (FIMMDA). It disseminates secondary market
transactions in CDs and CPs. The RBI has directed all its regulated
entities to report their Over the Counter (OTC) trades in CDs and CPs to
FIMMDA. Other regulators such as SEBI and Insurance Regulatory and

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Development Authority (IRDA) have also been advised to regulate their

CPs/CDs in their trade entities on this platform.

Repo in corporate bonds RBI has accepted repo in corporate bonds to

develop corporate bond market. All the repo trades of corporate bond
market are reported to FIMMDA reporting platform for dissemination of
price/yield information to the market participants. Repo trades in
corporate bonds shall be settled through mechanism available in the
case of OTC trades in corporate bond market. Only listed corporate debt
securities, which are rated AA and above is eligible for repo
transactions. The repo trade transactions in corporate debt securities will
be considered as borrowing/lending transactions. The participants
entering repo in corporate bonds are required to sign the Global Master
Repo Agreement (GMRA) as finalised by FIMMDA.

Revised guidelines for accounting of repo/reverse repo transactions The revised guidelines were issued on March 24, 2010, and came into
effect from April 1, 2010. They require repo/reverse repo transactions to
be reported as outright sale and purchase as per the current market
convention. The movements should be reported in books of the
counterparties by showing same contra entries for greater transparency.

Regulation of Non-Convertible Debentures (NCDs) of maturity up to one

year RBI issued directions under the sections 45W of the RBI
(Amendment) Act on June 23, 2006 to address the regulatory gap that
existed in issuance of NCDs of maturity up to one year through private
placement. According to the directions, which are applicable for secured
and unsecured NCDs, the NCDs cannot be issued for maturities less
than 90 days and options that are exercisable within 90 days from the
date of issue cannot be modified. Issuers of the NCDs have to appoint a
Debenture Trustee and every issue should be reported to RBI. NCDs
have been prescribed for the eligibility criteria, rating requirements, etc.
while issuing CPs.

Self Assessment Questions

10. The regulatory bodies of financial market in India are the RBI and
___________.
11. Money market is under direct purview of the RBI. (True/False)
12. The reporting platform for CDs and CPs is operated by ___________.
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2.6 Summary

Financial market is the place for trading in financial instruments. Money

market and capital market are two types of financial markets.
Money market helps fulfil short-term cash needs of government and
large companies.
Money market instruments take care of the borrowers' short-term needs
and provide the required liquidity to the lenders. The types of money
market instruments are treasury bills, commercial papers, certificates of
deposit, bills of exchange, repo and reverse repo.
Collateralised Borrowing and Lending Obligations (CBLO) provide
liquidity to entities that have been phased out of the call money market
or have restrictions on borrowing/lending in that market.
Regulation of money market is essential to manage liquidity effectively
and prevent liquidity mismatch in the system.

2.7 Glossary

Collateral: Property or assets made by available by the borrower to the

lender as a security against a loan

Liability: An obligation that legally binds an individual or a company to a

payment.

Liquidity: Money, investments or property that can be changed into

money readily.

Surplus funds: Money remaining after all immediate liabilities is paid.

2.8 Terminal Questions

1.
2.
3.
4.

Explain the features, structures and types of the money market.

List money market instruments and describe each.
Describe collateralised borrowing and lending obligations.
Discuss the regulations of money market.

2.9 Answers
Self Assessment Questions
1. Short-term
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3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

Unit 2

Call money market

True
Euro Commercial Paper
Bills of exchange
True
Collateralised borrowing and lending obligations (CBLO)
Clearing Corporation of India Limited (CCIL)
True
Securities and Exchange Board of India
True
FIMMDA

Terminal Questions
1. Money market is the centre for dealings, mainly of short-term character,
in money assets; it meets the short-term requirements of borrowers and
provides liquidity or cash to the lenders. Refer to section 2.2.
2. Money market instruments take care of the borrowers' short-term needs.
Major instruments are certificates of deposits, bills of exchange, repos &
reverse repos, and commercial paper. Refer to section 2.3.
3. CBLO provides liquidity to non-banking entities that have phased out of
call money market. Refer to section 2.4.
4. Money market comes under direct purview of RBI. Key regulations
include introduction of reporting platform for CDs, revision in accounting
guidelines for repo transactions, and additional controls on specific
instruments like NCDs. Refer to section 2.5.

2.10 Case Study

Repo Auctions in India
The monetary policy of 1992 announced auction mechanism for sale of
government securities as a new approach to internal debt management.
Repo auctions for government securities were introduced in Dec 1992. RBI
conducts repo auction in government securities to balance the short-term
liquidity in the money market and provides a channel for the banking system
to optimise returns on short-term surplus funds.
Repos gained prominence in 1993-94 due to the sharp increase in liquidity
caused by large capital inflows. The average value for bids accepted that
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year was ` 2,729 crores. The sharp expansion of non-food credit and the
rigid liquidity conditions due to decline in capital inflow led to suspension of
repo auctions in Feb 1995. To address this issue, reverse repo auction on
government securities was extended to STCI and DFHI in order to inject
liquidity into the system. As a result, the rise in the call money rate was
stopped.
During 1992-93, the total value of bids accepted was ` 68, 636 crore with
cut-off ranging from 5% to 19.5%.In 1993-94 it was ` 98, 239 crore with cutoff between 5.75% and 11.5%. The success ratio in auctions was 66%. Due
to tight liquidity conditions in 1994-95; repos remained subdued with an
average turnover of ` 6,428 crore. During 1997-98 the average repo value
was ` 165, 000 crore with repo rate of 2.9%- 5%.
Repo transactions resumed in Nov 1996. Repos with maturity period of 3-4
days became active from Jan 1997. A calendar for monthly repo auctions
was introduced in Jan 1997 to facilitate treasury management. The repo rate
varied from 5.75% to 7% for a period of 14 days.
From Nov 97 fixed repo rates were introduced. The daily turnover for threeday repos was ` 3,465-10, 000 crore. Initially the repo was at 4.5%, raised to
7% in Dec 97 and to 9% in Jan 98. In order to maintain stability in domestic
and foreign exchange markets the repo rate was brought down to 8%.
During 1997-98 repos managed short-term liquidity in the financial systems.
Discussion Question
1. Explain the aim of reverse repo auctions.
(Hint: Inject liquidity into the system)
Source: http://mpra.ub.unimuenchen.de/12147/1/repo_auction_bidders_behaviour.pdf retrieved on 23.10.10

References:
Bhole L. M & Mahakud J (2009), Financial Institutions and Markets, Fifth
Edition, Tata McGraw-Hill New Delhi
Dr. K. Natarajan & Prof. E. Gordon (2009), Financial Market Operations
1st Edition, Himalaya Publishing House, Girgaon, Mumbai 400 004.
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Treasury Management (Finance)

Unit 2

G. Ramesh Babu (2007), Management of Financial Institutions in India,

First Edition, Concept Publishing Company, New Delhi
Khan M. Y. & Jain P. K. (2006), Management Accounting and Financial
Analysis, Second Edition, Tata McGraw-Hill New Delhi.
Pathak B. V. (2008),The Indian Financial Systems: Markets, Instruments
and Services, Second Edition, Dorling Kindersley Pvt. Ltd, NOIDA

E-References:
http://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=984
Retrieved on 14.9.10
http://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=
&ID=34 Retrieved on 15.9.10

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