Capital Market & Money market

Capital MarketMeaning: Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities. Definition:Capital markets are defined as markets in which money is provided for periods longer than a year. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments.

Financial regulators, such as the UK's Bank of England (BoE) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their jurisdictions to protect investors against fraud, among other duties.

Capital market includes two types of market Primary market Secondary market

In primary markets, new stock or bond issues are sold to investors, often via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on an exchange, over-the-counter, or elsewhere.

There are a number of capital market instruments used for market trade, including -

Stocks Bonds Debentures Treasury-bills Foreign Exchange Fixed deposits, and others

Capital Market Instruments

Functions of capital marketMobilization of Savings

Capital Formation

Provision of Investment Avenue

Speed up Economic Growth and Development

Proper Regulation of Funds

Continuous Availability of Funds

Money market

Meaning: Money markets are financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less. Trading in the money markets is done over the counter and is wholesale, one year or less.

Participants of Money markets are: Trading companies often purchase bankers'

acceptances to be tendered for payment to overseas suppliers.

Retail and institutional money market funds Banks Central banks Cash management programs Merchant banks

MONEY MARKET INSTRUMENTS

Certificate of deposit Repurchase agreements 

Commercial paper 

Treasury bills

Money funds 

Functions of the money market

1Financ-ing Trad

e

2Financ-ing

Industry

3Profitable Investme-nt

4Self-Sufficiency of

Commercial Bank

5Help

to Central Ban

k

DIFFERENCE BETWEEN CAPITAL MARKET & MONEY MARKET

  Money Market Capital Market

Definition

Is a component of the financial markets where short-term borrowing takes place

Is a component of financial markets where long-term borrowing takes place

Maturity

PeriodLasts anywhere from 1 hour to 90 days.

Lasts for more than one year and can also include life-time of a company.

Credit Instruments

Certificate of deposit, Repurchase agreements, Commercial paper, Eurodollar deposit, Federal funds, Municipal notes, Treasury bills, Money funds, Foreign Exchange Swaps, short-lived mortgage and asset-backed securities.

Stocks, Shares, Debentures, bonds, Securities of the Government.

Nature of

Credit Instruments

Homogenous. A lot of variety causes problems for investors.

Heterogeneous. A lot of varieties are required.

Purpose of Loan

Short-term credit required for small investments.

Long-term credit required to establish business, expand business or purchase fixed assets.

Basic Role Liquidity adjustment Putting capital to work

Institutions

Central banks, Commercial banks, Acceptance houses, Nonbank financial institutions, Bill brokers, etc.

Stock exchanges, Commercial banks and Nonbank institutions, such as Insurance Companies, Mortgage Banks, Building Societies, etc.

Risk Risk is small Risk is greater

Market Regulati

on

Commercial banks are closely regulated to prevent occurrence of a liquidity crisis.

Institutions are regulated to keep them from defrauding customers.

Relation with

Central Bank

Closely related to the central banks of the country.

Indirectly related with central banks and feels fluctuations depending on the policies of central banks.

Thank You

By, Meghashree S Student, Jain Institute of Business Management, Jakkasandra, Kanakapura taluk, Ramanagara district. Pin: 562 112

E-mail:jaganmaataputri@gmail.com