MONEY MARKET AND CAPITAL MARKET

Guys, this article is about money market and capital market, these markets are an extension to financial market or parts of financial market.

MONEY MARKET V/S CAPITAL MARKET

> Money market, as the name tells it is a market that is highly associated with money. It is a place where assets having maturity period upto one year are dealt. Maturity period means the time uptil which assets can be converted into cash. The market deals in highly liquid assets and all the transactions can be done on telephone or internet as the market has no physical existence.

Short term funds can easily be raised because all the assets sold and bought have a liquid nature. The market is featured by its participants like reserve bank of india, commercial banks, mutual funds etc.

> Capital market, unlike money market capital market is associated with those facilities and such arrangements that helps to raise and invest long term funds.

It is a place where all the savings of the community is made available to the enterprises for various purposes, like long term debt, etc. The market consists of stock exchanges, commercial banks, development banks etc.

The situation of the economy can be understood by studying the movement in stock exchanges of the country, therefore a good capital market ensure good economic stability and it provides a chance at a reasonable cost.

SOME MAJOR MONEY MARKET INSTRUMENTS:

1) Call Money, it is a short term finance method largely used by the banks to maintain their minimum cash balance also known as cash reserve ratio. All the banks have to maintain a minimum cash balance to be given as loans and in order to maintain thta balance banks use the technique of call money ie they borrow from another bank to maintain the balance. 

Also, RBI keeps on changing the CRR(cash reserve ratio) from time to time thta is why this method is highly practiced. This short term finance is repayble on demand and has a period from 1 day to 15 days.

2) Commercial Paper, it is a short term, unsecured promissory note issued by the large and credit wothy companies to raise short term finance to meet some urgent requirements. It is basically a note that firm will pay raised amount in the given period of time(ranges from 15 days to 1 year).

3) Commercial Bill, it is a bill of exchange thta is used to finance the working capital requirements.It is a short term negotiable instrument to finance the credit sales.

When the goods are sold on credit, the seller can either wait for payment or can make use of a bill of exchange. In this case the seller draws a bill and buyer accepts it, on being accepted it becomes a marketable intrument thta can be easily tradedor dicounted with bank in case funds are needed.

PRIMARY AND SECONDARY MARKET:

These market are an extension to capital market,

1) Primary market, it is a market for the new securities being issued also known as new issue market. It facilitates the transfer of funds to enterprises who seeks to expand their business.

2) Secondary Market, It can be described in one word ie stock exchanges. focus on purchase and sale of existing securities.

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