DISCOUNT MARKET

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DO’S DONT’S Probe No Regional Languages Respect the speaker Don’t interrupt Wait for your turn Sneak around Be Responsive Don’t be dumb Be Proactive Slumber Be Attentive Freak :

DO’S DONT’S Probe No Regional Languages Respect the speaker Don’t interrupt Wait for your turn Sneak around Be Responsive Don’t be dumb Be Proactive Slumber Be Attentive Freak

WHAT’S IN IT FOR ME?? INTRODUCTION ABOUT DISCOUNT MARKET  WHAT IS DFHI?  ROLES AND FUNCTIONS OF DFHI  GUARANTEES  TYPES OF GUARANTEES  SOURCES OF GUARANTEES By the end of this module you can derive the answers for the above contents :

WHAT’S IN IT FOR ME??  INTRODUCTION ABOUT DISCOUNT MARKET  WHAT IS DFHI?  ROLES AND FUNCTIONS OF DFHI  GUARANTEES  TYPES OF GUARANTEES  SOURCES OF GUARANTEES By the end of this module you can derive the answers for the above contents

DISCOUNT MARKET INTRODUCTION The discount market refers to a market place where short-term instruments such as commercial bills or treasury bills are discounted by financial intermediaries such as commercial banks. For Example: when the goods are sold on credit, the seller draws a bill on the buyer who accepts it promising to pay the specified sum at a specified date. The seller, instead of waiting for the maturity of bill, gets it discounted with commercial bank :

DISCOUNT MARKET INTRODUCTION  The discount market refers to a market place where short-term instruments such as commercial bills or treasury bills are discounted by financial intermediaries such as commercial banks. For Example: when the goods are sold on credit, the seller draws a bill on the buyer who accepts it promising to pay the specified sum at a specified date. The seller, instead of waiting for the maturity of bill, gets it discounted with commercial bank

To make it very evident, lets look at the below example: “A” Company sells its assets to “B” company worth of 5,00,000 Rupees. At this point of time “B” doesn’t have money to pay it at the time of transaction. So here “A” will go about raising a genuine trade transaction. i.e. Credit transaction. As soon as goods are sold on credit, the seller draws a bill on the buyer for the amount due. The buyer accepts it immediately agreeing to pay amount mentioned therein after a certain specified date. Thus, a bill of exchange contains a written order from the creditor to the debtor, to pay a certain sum, to a certain person. :

To make it very evident, lets look at the below example: “A” Company sells its assets to “B” company worth of 5,00,000 Rupees. At this point of time “B” doesn’t have money to pay it at the time of transaction. So here “A” will go about raising a genuine trade transaction. i.e. Credit transaction. As soon as goods are sold on credit, the seller draws a bill on the buyer for the amount due. The buyer accepts it immediately agreeing to pay amount mentioned therein after a certain specified date. Thus, a bill of exchange contains a written order from the creditor to the debtor, to pay a certain sum, to a certain person.

Once the bill is generated, “A” can get the bill discounted with the help of financial intermediaries, and the buyer will pay the actual value to the financial intermediaries . :

Once the bill is generated, “A” can get the bill discounted with the help of financial intermediaries, and the buyer will pay the actual value to the financial intermediaries .

The bank after deducting the discount charges makes the payment of the bill to the seller. On the date of maturity the bank will claim the amount of the bill from the person who accepted the bill. In U.K, there are specialized institutions called Discount Houses which specialize only in the field of discounting bills and papers. They operate as principals, jobbers, brokers and commission agents and earn income from these activities. Discount houses help to stabilize the money rates and prevent monetary losses. :

The bank after deducting the discount charges makes the payment of the bill to the seller. On the date of maturity the bank will claim the amount of the bill from the person who accepted the bill. In U.K, there are specialized institutions called Discount Houses which specialize only in the field of discounting bills and papers. They operate as principals, jobbers, brokers and commission agents and earn income from these activities. Discount houses help to stabilize the money rates and prevent monetary losses.

DISCOUNTING SERVICE: Before 1988, the RBI helped the commercial banks in their liquidity management by providing them rediscounting of bills facility so that banks get abundance liquidity in times of liquidity shortages. Institutions such as IDBI, NABARD, EXIM bank, SIDBI and NHB also play an important role in the discount market. IDBI  The industrial Development Bank of India NABARD National bank for Agriculture and Rural Development EXIM  Export import Bank SIDBI  Small industries Development bank of India NHB National Housing Bank :

DISCOUNTING SERVICE: Before 1988, the RBI helped the commercial banks in their liquidity management by providing them rediscounting of bills facility so that banks get abundance liquidity in times of liquidity shortages. Institutions such as IDBI, NABARD, EXIM bank, SIDBI and NHB also play an important role in the discount market. IDBI  The industrial Development Bank of India NABARD  National bank for Agriculture and Rural Development EXIM  Export import Bank SIDBI  Small industries Development bank of India NHB National Housing Bank

DISCOUNT AND FINANCE HOUSE OF INDIA (DFHI) The discount and Finance House of India was incorporated on March 9, 1988 under the Companies Act, 1956 and started its business operations weft 25th April, 1988. DFHI was set up jointly by the Reserve Bank of India, public sector banks and financial institutions with the primary objectives of deepening and activating the money market. Presently, it has its own paid- up capital of Rs,200 crore and authorized capital of Rs, 250 crore. RBI provides refinance facility to DFHI against the collateral security of treasury bills and eligible commercial bills. :

DISCOUNT AND FINANCE HOUSE OF INDIA (DFHI) The discount and Finance House of India was incorporated on March 9, 1988 under the Companies Act, 1956 and started its business operations weft 25th April, 1988. DFHI was set up jointly by the Reserve Bank of India, public sector banks and financial institutions with the primary objectives of deepening and activating the money market. Presently, it has its own paid- up capital of Rs,200 crore and authorized capital of Rs, 250 crore . RBI provides refinance facility to DFHI against the collateral security of treasury bills and eligible commercial bills.

ROLES OF DFHI The primary objectives of DFHI are to stabilize the liquidity imbalances by developing primary and secondary money markets. DFHI performs the following functions DFHI integrates its main market at Mumbai with other markets at regional centre’s through its strong network. :

ROLES OF DFHI The primary objectives of DFHI are to stabilize the liquidity imbalances by developing primary and secondary money markets. DFHI performs the following functions DFHI integrates its main market at Mumbai with other markets at regional centre’s through its strong network. DFHI

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Depository of Surplus Funds Uses Surplus funds to even out imbalances in banking system

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Provides Ready Market for commercial bills, Treasury Bills, Government guaranteed securities by purchasing and selling to the banks Acts as a specialized money market intermediary for boosting trading in money market

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Discounts not only in commercial bills but also in treasury bills and other money market instruments Helps money market transactions for small and medium sized institutions Undertakes short-term buy back operations in government and approved dated securities

Activities of DFHI DFHI deals actively in all money market instruments. Its activities are restricted to: ·         Dealing in 91 days and 364 days treasury bills(TBs) ·         Rediscounting of short-term commercial bills ·         Participating in call money market and term deposit ·         Government dated securities ·         Dealing in commercial paper(CP) and certificates of deposits(CDs :

Activities of DFHI DFHI deals actively in all money market instruments. Its activities are restricted to: ·         Dealing in 91 days and 364 days treasury bills(TBs) ·         Rediscounting of short-term commercial bills ·         Participating in call money market and term deposit ·         Government dated securities ·         Dealing in commercial paper(CP) and certificates of deposits(CDs

TREASURY BILLS DFHI provides ready market for purchase or sale of TBs. it quotes regular bid and offer rates (two- way prices for purchase and sale) for treasury bills. DFHI participates in fortnightly auctions held for TBs. It’s primary objectives is to develop secondary market for TBs so that corporate bodies and other institutions could invest their surplus funds in such bills. REDISCOUNTING OF COMMERCIAL BILLS DFHI imparts liquidity to commercial bills by rediscounting the bills already discounted by banks and financial institutions. It announces its bid and offers re-discount rates on a fortnightly basis. :

TREASURY BILLS DFHI provides ready market for purchase or sale of TBs. it quotes regular bid and offer rates (two- way prices for purchase and sale) for treasury bills. DFHI participates in fortnightly auctions held for TBs. It’s primary objectives is to develop secondary market for TBs so that corporate bodies and other institutions could invest their surplus funds in such bills. REDISCOUNTING OF COMMERCIAL BILLS DFHI imparts liquidity to commercial bills by rediscounting the bills already discounted by banks and financial institutions. It announces its bid and offers re-discount rates on a fortnightly basis.

CALL MONEY MARKET AND TERM DEPOSIT DFHI renders services to banks in the call money market by arranging or placing funds for banks. It acts both as lender and borrower in the inter-bank call money market. It deals in overnight call and notice money up to 14 days. GOVERNMENT DATED SECURITIES: DFHI started dealing in government securities in 1992. It was permitted to act as primary dealer (PD) in feb 1996. MARKET FOR FINANCIAL GUARANTEES Creditors/ Suppliers of funds are always at risk of non-payment of loans by the debtors. In order to minimize the risk, they always insist on some guarantee by the third person so that in case, the principal debtors make a default in the repayment of loans, the guarantor becomes the debtor i.e. the guarantor becomes liable for repayment of loan capital. :

CALL MONEY MARKET AND TERM DEPOSIT DFHI renders services to banks in the call money market by arranging or placing funds for banks. It acts both as lender and borrower in the inter-bank call money market. It deals in overnight call and notice money up to 14 days. GOVERNMENT DATED SECURITIES: DFHI started dealing in government securities in 1992. It was permitted to act as primary dealer (PD) in feb 1996. MARKET FOR FINANCIAL GUARANTEES Creditors/ Suppliers of funds are always at risk of non-payment of loans by the debtors. In order to minimize the risk, they always insist on some guarantee by the third person so that in case, the principal debtors make a default in the repayment of loans, the guarantor becomes the debtor i.e. the guarantor becomes liable for repayment of loan capital.

Refresh yourself: :

Refresh yourself:

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Donkey says” Hey kid can I take a photograph with you, I want to show it to my penpal ”

I want to take bath now!!!!! :

I want to take bath now!!!!!

I am getting ready for olympics:

I am getting ready for olympics

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Hope you folks have enjoyed a lot by looking at those funny pics !!! Its time to get back to the presentation. I know its boring!! You don’t have any option. Neither I don’t!!!!

Secures guarantees: These types of guarantees are backed by tangible assets from the guarantor. When both the principal debtor as well as the guarantor fail to repay the loan amount the creditors will have right to charge such security.   Specific Guarantees: It refers to the guarantee given for a particular single loan transaction ·         Continuing guarantees: When the guarantee is given for a number of transactions in a particular period. ·         Explicit guarantee: The agreement clearly states the liability of the guarantor fin case of non- payment of amount due by the principal debtor. ·         Implicit guarantee: where the liability of the guarantor to pay is implied in case of default by the principal debtor. :

Secures guarantees: These types of guarantees are backed by tangible assets from the guarantor. When both the principal debtor as well as the guarantor fail to repay the loan amount the creditors will have right to charge such security. Specific Guarantees: It refers to the guarantee given for a particular single loan transaction ·         Continuing guarantees: When the guarantee is given for a number of transactions in a particular period. ·         Explicit guarantee: The agreement clearly states the liability of the guarantor fin case of non- payment of amount due by the principal debtor. · Implicit guarantee: where the liability of the guarantor to pay is implied in case of default by the principal debtor.

SOURCES OF GUARANTEE: Personal Guarantees: Personal guarantees are widely used in unorganized financial markets in India. Usually, guarantee is given in writing or by word of mouth for smaller amounts of loans. They are used for raising loans for consumption purposes or social purposes such as marriage, education, health etc Guarantees by the government: The central and state government also gives guarantee in respect of loans raised by state and central co-operative banks, public sector enterprises and public corporations and other bodies from the commercial banks and the RBI   :

SOURCES OF GUARANTEE: Personal Guarantees: Personal guarantees are widely used in unorganized financial markets in India. Usually, guarantee is given in writing or by word of mouth for smaller amounts of loans. They are used for raising loans for consumption purposes or social purposes such as marriage, education, health etc Guarantees by the government: The central and state government also gives guarantee in respect of loans raised by state and central co-operative banks, public sector enterprises and public corporations and other bodies from the commercial banks and the RBI

Guarantees by Financial Institution: The market for financial guarantees has expanded and has become well developed with the increasing number of financial institutions providing guarantees. These financial institutions include commercial banks, insurance companies, state and central level statutory financial institutions Commercial banks: Commercial banks provide both performance as well as financial guarantees. In respect of imports of machinery, they guarantee export performance on behalf of their clients Insurance Companies: Insurance companies provide guarantee for various purposes including for the term loans taken from the banks, for the deferred payments to supplier of equipment, in respect of the borrowings by hire- purchase companies to banks and other financial institutions etc :

Guarantees by Financial Institution: The market for financial guarantees has expanded and has become well developed with the increasing number of financial institutions providing guarantees. These financial institutions include commercial banks, insurance companies, state and central level statutory financial institutions Commercial banks: Commercial banks provide both performance as well as financial guarantees. In respect of imports of machinery, they guarantee export performance on behalf of their clients Insurance Companies: Insurance companies provide guarantee for various purposes including for the term loans taken from the banks, for the deferred payments to supplier of equipment, in respect of the borrowings by hire- purchase companies to banks and other financial institutions etc

GOVERNMENT SECURITIES MARKET: Government securities are the instruments issued by central government, state governments, semi-government bodies, public sector corporations and financial institutions such as IDBI, IFCI, state Financial Corporation’s (SFCs) etc. in the form of marketable debt. Government securities form an important part of the stock market in India. They are considered to be more liquid assets and ensure certainty of capital value not only at maturity but also before maturity. :

GOVERNMENT SECURITIES MARKET: Government securities are the instruments issued by central government, state governments, semi-government bodies, public sector corporations and financial institutions such as IDBI, IFCI, state Financial Corporation’s (SFCs) etc. in the form of marketable debt. Government securities form an important part of the stock market in India. They are considered to be more liquid assets and ensure certainty of capital value not only at maturity but also before maturity.

FEATURES OF GOVERNMENT SECURITIES MARKET: The main features of the government securities market in India are as follows: 1.       The government securities are the marketable debt instruments issued by central and state governments 2.       Government securities occupy an important place in the financial market. Reserve Bank of India purchases and sells these securities in the open market in order to exercise monetary control in the country. 3.       Government Securities carry a fixed rate of interest which is payable half- yearly. The rate of interest on government securities is generally lower as compared to the other securities 4.       The face value of these securities is either Rs. 100 or Rs.1000 5.       Government securities are safest as regards the payment of interest and repayment of principal amount. 6.       Interest on government securities is exempted from income-tax subject to the provisions of section 80-L of the income-act, 1961. However, interest on securities of local authorities is not exempted from tax.   :

FEATURES OF GOVERNMENT SECURITIES MARKET: The main features of the government securities market in India are as follows: 1.       The government securities are the marketable debt instruments issued by central and state governments 2.       Government securities occupy an important place in the financial market. Reserve Bank of India purchases and sells these securities in the open market in order to exercise monetary control in the country. 3.       Government Securities carry a fixed rate of interest which is payable half- yearly. The rate of interest on government securities is generally lower as compared to the other securities 4.       The face value of these securities is either Rs. 100 or Rs.1000 5.       Government securities are safest as regards the payment of interest and repayment of principal amount. 6.       Interest on government securities is exempted from income-tax subject to the provisions of section 80-L of the income-act, 1961. However, interest on securities of local authorities is not exempted from tax.

7.       Government securities can be issued either in the form of stock certificate (SC), promissory note (PN) or bearer bond. But out of these, promissory note is most common 8.       Government securities are issued through public debt office (PDO) of the RBI. There are no listing requirements for them for listing on stock exchange. END OF THE MODULE :

7.       Government securities can be issued either in the form of stock certificate (SC), promissory note (PN) or bearer bond. But out of these, promissory note is most common 8.       Government securities are issued through public debt office (PDO) of the RBI. There are no listing requirements for them for listing on stock exchange. END OF THE MODULE

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