Instruments of Money Market: 

(i) Commercial Paper:

• Commercial papers were first issued in the Indian money market in 1990.
• They are unsecured debt instruments.
• They are issued only by companies with strong credit ratings. They are issued at a discount rate. They are in the form of promissory notes.
• They are negotiable instruments i.e. they are freely transferable by endorsement and delivery.
• They are issued for a period of 15 days to 1 year.

(ii) Commercial Bills:

When the goods are sold on credit, the buyer becomes liable to make payment on a specific date in the future.

The seller draws a bill and the buyer accepts it. On acceptance, the bill becomes a marketable instrument called a Trade Bill.

When a Trade Bill is accepted by a commercial bank, it is known as a commercial bill.

They are in the form of negotiable instruments.

They are usually issued for a period of 90 days. But this period can vary between 30 to 90 days.

The liquidity of this bill is very high.

It is the most common method to meet the credit needs of trade and industry.

(iii) Certificate of Deposits:

• Certificate of Deposits was first introduced to the money market of India in 1989.
• They are issued by commercial banks or financial institutions at discount, at par, or at market rate.
• They are in the form of promissory notes and stamp duty is applicable on the instrument.
• The maturity periods of this instrument are from 15 days to 1 year.
• The subscribers for certificates of deposits are individuals, associations, companies, trusts, etc.
• They are freely transferable by endorsement and delivery after a lock in period of a minimum of 15 days.

(iv) Treasury Bills:

• Issue/Use of Treasury Bills was started by the Indian government in 1917.
• This instrument is issued by the government to institutions or the public to bridge the gap between receipts and expenditure.
• It is issued by the government on a discount for a fixed period not exceeding 1 year.
• These bills are in the nature of promissory notes containing a promise to pay the amount stated to the bearer of the instrument.
• The maturity period of this bill is 182 days.
• These bills enjoy a high degree of liquidity.