Money market & Capital market
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Money MarketThe organization for the lending of short-term fund, through the use of such instruments as commercial bills of exchange, short-term government securities and bankers acceptance.
Functions of Money Markettransfer of large sums of moneytransfer from parties with surplus funds to parties with a deficitallow governments to raise fundshelp to implement monetary policydetermine short-term interest ratesMedium to control creation of Credit
Composition of Money Market
Financial institutes of Money Market
Characteristics of a Developed Money Market
Usefulness of a Developed Money Market
Structure of Money Market
Characteristics of Money Market
Defects of Money MarketLoose and Disjoined StructureWasteful CompetitionShortage of CapitalInadequate Banking FacilitiesSeasonal Shortage of FundsDisparity in Interest rates in Different CentersUndeveloped Bill MarketInelasticity and InstabilityAbsence of Sub-MarketsInsensitive to International Influence
Measure for Improvement of the Money MarketSteps has been taken to establish relations between indigenous bankers and commercial bankerReducing monetary shortages through open market operationsDiversifying the MarketAccess to bill rediscounting market increasingly
Suggestion to remove defectsThe activities of the money lender and chit fund should brought under controlBanking facilities should be extended, especially in the unbanked and neglected areasThe number of clearing house should be increased Adequate and easy remittance facilities should be provided to the businessmanHarmony between sub-markets and co-ordination of their activities must be achieved
Recent innovations in the Money Market91 days T- bill182 days T- bill364 days T- bill2 years T-bond5 years T-bond10 years T-bond20 years T-bond
The Repo MarketRepo is a money market instrument which helps in collateralized short-term borrowing and lending through sale/purchase operations in debt instrument. Under a repo transaction, securities are sold by their holder to an investor with an agreement to purchase them at a predetermined rate and date.
The Commercial Bill MarketThe Commercial bill market is the sub-market in which the trade bills or the commercial bills are handled. The Commercial bill is a bill drawn by one merchant firm on the other. Generally, Commercial bills arise out of the domestic transactions. The legitimate purpose of a commercial bill is to reimburse the seller while the buyer delays payment.
The Certificate of Deposit MarketACertificate of Deposit (CD) is atime deposit with a bank. CDs are generally issued by commercial banks but they can be bought through brokerages. They bear a specific maturity date (from three months to five years), a specified interest rate, and can be issued in any denomination, much like bonds. Like all time deposits, the funds may not be withdrawn on demand like those in a checking account.
The Commercial Paper MarketIn the globalmoney market, commercial paper is anunsecured promissory notewith a fixedmaturity of no more than 270 days. Commercial paper is a money-marketsecurity issued (sold) by largecorporationto getmoneyto meet short termdebtobligations (for example,payroll), and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note.
Money Market Mutual FundACertificate of Deposit (CD) is atime deposit with a bank. CDs are generally issued by commercial banks but they can be bought through brokerages. They bear a specific maturity date (from three months to five years), a specified interest rate, and can be issued in any denomination, much like bonds. Like all time deposits, the funds may not be withdrawn on demand like those in a checking account.
Capital MarketA market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.
Classification of Capital MarketThe Capital Market of Bangladesh consists of two part. They are-Primary Market: The Primary Market is a place where new shares and bonds are offered.Secondary Market: Secondary market is a place where existing shares and debentures are treaded.
Importance of Capital Market
Mobilizing Savings: The capital market plays a vital role in mobilizing savings to put it in productive investment, so that the development of trade, commerce and industry could be facilitated. Stability in Value: In case of a developed capital market, the experts in banking and non-banking intermediaries put in every effort in stabilizing the values of stocks and securities. Encouragement to Economic Growth: The various institutions of the capital market give quantitative and qualitative direction to the flow of funds that cause economic growth.Inducement to Savings: Savings are the backbone of any nations economic development. If capital markets are developed in less developed areas, people will get induced to save more because savings are facilitated by banking and non-banking financial intermediaries.
Functions of Capital MarketMobilization of financial resources on a nation wide scale,Securing the foreign capital and know how to fill up the deficit in the required resources for economic growth at a faster rate,Effective allocation of the mobilized financial resources by directing the same to projects yielding highest yield to the projects needed to promote balanced economic development.
Structure of Capital Market
COMPONENTS OF BANGLADESI CAPITAL MARKET
New Issue Market: The new issue market is called primary market where new shares or bonds are offered. Both the new companies and existing ones raise capital on the new issue market.Stock Market: Secondary or stock market represents the secondary market where existing shares and debentures are traded. Stock exchange provides an organized mechanism of purchase and sale of existing securities.Financial Institutions: Special financial institutions are the most active constituents of Money Market. Such organizations provide medium and long-term loans repayable on easy instalments to big business houses.
RECENT TRENDS IN THE CAPITAL MARKET
1. Growth of Capital Market2. New Financial Instruments3. New Specialized Financial Institution4. Financial Services5. Regulation of Capital Market
SIMILALARITES OF MONEY MARKET and CAPITAL MARKETComplementary: The Money Market and the Capital Market are complementary to each other and are not competitive. The difference between two is only of degree rather than of kind.Same Institutions: Certain institutions operate in money as well as capital markets. For example, commercial banks operate in money market as well as in Capital Market.Interdependence: Money Market and Capital Market are interdependent. The activities and policies of one market have their impact on those of the other.
DIFFERECES BETWEEN MONEY MARKET and CAPITAL MARKET1. Maturity Period2. Credit Instruments3. Institutions 4. Risk5. Market Regulation6. Relation with Central Bank
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