MONEY MARKET AND CAPITAL MARKET

• MONEY MARKET

• VS
• CAPITAL MARKET

• 
  

• FINANCIAL SERVICES AND MARKETS
• DR SHASHI AGGARWAL

• MEANING OF MONEY MARKET

1. DOES NOT REFER TO A PARTICULAR PLACE WHERE SHORT TERM FUNDS ARE DEALT WITH
2. MONEY MARKET IS A MARKET FOR SHORT TERM LOANS OF FINANCIAL ASSETS
3. MARKET FOR LENDING AND BORROWING OF SHORT TERM FUNDS
4. DOES NT DEAL IN ACTUAL CASH OR MONEY ,DEALS WITH NEAR SUBSTITUTES FOR MONEY OR NEAR MONEY
5. MONEY MARKET INSTRUMENT IS LIQUID AND CAN BE QUICKLY CONVERTED TO MONEY
6. BASICALLY A TELEPHONE MARKET WHERE ALL THE TRANSACTIONS ARE CARRIED THROUGH TELEPHONIC COMMUNICATION
7. IT IS A MARKET FOR SHORT TERM LOANS OR FINANCIAL ASSETS. IT IS A MARKET FOR LENDING AND BORROWING OF SHORT TERM FUNDS. IT DEALS WITH NEAR SUBSTITUTES FOR MONEY OR NEAR MONEY LIKE TRADE BILLS, PROMISSORY NOTES ETC.

• THE RBI DEFINES MONEY MARKET AS “ A MARKET FOR SHORT TERM FINANCIAL ASSETS THAT ARE CLOSE SUBSTITUTES FOR MONEY, FACILITATES THE EXCHANGE OF MONEY FOR NEW FINANCIAL CLAIMS IN THE PRIMARY MARKET AND ALSO FOR FINANCIAL CLAIMS, ALREADY ISSUED IN THE SECONDARY MARKET.

• FEATURES OF MONEY MARKET

1. PURELY FOR SHORT TERM FUNDS
2. DEALS WITH FINANCIAL ASSETS HAVING A MATURITY PERIOD UP TO ONE YEAR.
3. TRANSACTION MAY TAKE THROUGH PHONE AND ALSO CONDUCTED WITH THE HELP OF BROKERS
4. COMPRISES OF VARIOUS SUB MARKET EACH SPECIALIZING IN PARTICULAR TYPE OF FINANCING ,EG. CALL MONEY MARKET, ACCEPTANCE MARKET AND BILL MARKET AND SO ON

• THE COMPONENTS OF MONEY MARKET ARE:-

1. CENTRAL BANK
2. COMMERCIAL BANK
3. NON BANKING FINANCIAL COMPANIES
4. DISCOUNT HOUSE AND ACCEPTANCE HOUSE

• OBJECTIVES OF MONEY MARKET

1. PARKING PLACE TO EMPLOY SHORT TERM SURPLUS FUNDS
2. OVERCOMING SHORT TERM DEFICITS
3. TO ENABLE THE CENTRAL BANK TO INFLUENCE AND REGULATE LIQUIDITY IN THE ECONOMY
4. QUICK ACCESS TO SHORT TERM FUNDS AT REASONABLE COST

• THE REQUIREMENT OF MONEY MARKET

1. A WELL DEVELOPED AND HIGHLY ORGANIZED COMMERCIAL BANKING SYSTEM
2. A STRONG CENTRAL BANK WITH A CAPACITY TO INFLUENCE AND CONTROL MONEY MARKET
3. A VARIETY OF MONEY INSTRUMENTS TO MEET THE REQUIREMENTS
4. ACTIVE SECONDARY MARKET FOR MONEY MARKET INSTRUMENTS
5. A LARGE NUMBER OF MARKET PARTICIPANTS
6. AVAILABILITY OF WELL DEVELOPED INFORMATION TECHNOLOGY AND COMMUNICATION
7. TWO WAYS QUOTES

• MEANING OF CAPITAL MARKET

• THE CAPITAL MARKET IS A MARKET FOR FINANCIAL ASSETS WHICH HAVE A LONG OR INDEFINITE MATURITY. IT DEALS WITH LONG TERM SECURITIES WHICH HAVE A MATURITY PERIOD OF ABOVE ONE YEAR.IT PROVIDES LONG TERM FUNDS FOR CORPORATES,CENTRAL AND STATE GOVERNMENT.
• CAPITAL MARKET MAY BE FURTHER SUBDIVIDED INTO :-

1. INDUSTRIAL SECURITIES MARKET
2. GOVERNMENT SECURITIES MARKET
3. LONG TERM LOAN MARKET

• INDUSTRIAL SECURITIES MARKET
• MARKET FOR INDUSTRIAL SECURITIES NAMELY :

1. EQUITY SHARES
2. PREFERENCE SHARES
3. DEBENTURES OR BONDS

·         MARKET WHERE INDUSTRIAL CONCERN RAISE THEIR CAPITAL OR DEBT BY ISSUING APPROPRIATE INSTRUMENTS

·         IS OF TWO TYPES

1. PRIMARY MARKET “ ALSO CALLED NEW ISSUE MARKET. THE PRIMARY MARKET DEALS WITH THOSE SECURITIES WHICH ARE ISSUED TO PUBLIC  FOR THE FIRST TIME
2. SECONDARY MARKET :MARKET FOR SECONDARY SALE OF SECURITIES. CONSISTS OF ALL STOCK EXCHANGES

• GOVERNMENT SECURITIES MARKET

1. ALSO CALLED GILT EDGED SECURITIES MARKET
2. WHERE GOVT SECURITIES ARE TRADED
3. SHORT TERM SECURITIES ARE TRADED IN MONEY MARKET
4. SECURITIES ISSUED BY THE CENTRAL GOVERNMENT,STATE GOVERNMENT,SEMI GOVERNMENT
5. GOVERNMENT SECURITIES ARE SOLD THROUGH THE PUBLIC DEBT OFFICE OF RBI WHILE TREASURY BILLS ARE THROUGH AUCTIONS
6. GOVERNMENT SECURITIES ARE ISSUED IN THE DENOMINATION OF RS 100
7. INTEREST IS PAYABLE HALF YEARLY AND ALSO CARRY TAX EXEMPTIONS

• LONG TERM LOAN MARKET

1. TERM LOANS MARKET :- MANY INDUSTRIAL FINANCING INSTITUTIONS HAVE BEEN CREATED BY THE GOVERNMENT AT THE NATIONAL AND REGIONAL LEVEL TO SUPPLY LONG TERM FUNDS
2. MORTGAGE MARKET :-A MORTGAGE LOAN IS LOAN AGAINST THE SECURITIES OF IMMOVABLE PROPERTY. THE TRANSFER OF INTEREST IN SPECIFIC MORTGAGE.MAY BE EQUITABLE MORTGAGE OR LEGAL MORTGAGE. EQUITABLE MORTGAGE : MERE DEPOSIT OF TITLE DEEDS. LEGAL MORTGAGE : TITLE IS LEGALLY TRANSFERRED TO THE LENDER BY THE BORROWER
3. FINANCIAL GUARANTEES MARKET: A GUARANTEE MARKET IS WHERE FINANCE IS PROVIDED AGAINST THE GUARANTEE OF REPUTED PERSON IN THE FINANCIAL CIRCLE

1. PERFORMANCE GUARANTEE : COVERS THE PAYMENT OF THE EARNEST MONEY,RETENTION MONEY,ADVANCE PAYMENTS,NON COMPLETION OF THE CONTRACT
2. FINANCIAL GUARANTEE COVER THE ONLY FINANCIAL CONTRACTS

• IN INDIA : DEFERRED PAYMENTS TO IMPORTS AND EXPORTS,MEDIUM AND LONG TERM LOANS RAISED,LOANS ADVANCED BY BANKS AND OTHER FINANCIAL INSTITUTIONS
• FEATURES OF CAPITAL MARKET

1. DEALING IN MEDIUM AND LONG TERM SECURITIES
2. DEALING IN MARKETABLE AND NON MARKETABLE: MARKETABLE SECURITIES ARE THOSE SECURITIES ARE THOSE WHICH CAN BE TRANSFERRED LIKE SHARE,DEBENTURES ETC
3. CAPITAL MARKET COMPRISE  INDIVIDUAL INVESTORS LIKE GENERAL PUBLIC AS WELL AS INSTITUTIONAL INVESTORS INCLUDE MUTUAL FUNDS,LIC ETC
4. INCLUDES BOTH PRIMARY AND SECONDARY MARKET
5. OPERATIONS IN THE CAPITAL MARKET IS CONDUCTED WITH THE HELP OF INTERMEDIARIES LIKE MERCHANT BANKERS,SUB BROKERS,COLLECTION BANKERS ETC
6. DIFFERENCE BETWEEN CAPITAL AND MONEY MARKET

• MONEY MARKET

1. MARKET FOR SHORT TERMS LOANABLE FUNDS  FOR A PERIOD NOT EXCEEDING ONE YEAR
2. MARKET SUPPLIES FUNDS FOR FINANCING CURRENT BUSINESS OPERATIONS,WORKING CAPITAL REQUIREMENTS,SHORT PERIOD OF REQUIREMENTS
3. THE INSTRUMENTS DEALT IN MONEY MARKET : BILLS OF EXCHANGE,TREASURY BILLS,COMMERCIAL PAPERS,CERTIFICATE OF DEPOSITS
4. EACH SINGLE MONEY MARKET INSTRUMENT IS OF LARGE AMOUNT. EACH CD OR CP IS FOR MINIMUM OF RS 25 LACS
5. CENTRAL BANKS AND COMMERCIAL BANKS ARE THE MAJOR INSTITUTION IN THE MONEY MARKET
6. MONEY MARKET INSTRUMENT GENERALLY DO NOT HAVE SECONDARY MARKETS
7. TRANSACTIONS TAKES PLACE OVER THE OVER THE PHONE AND NO FORMAL PLACE
8. TRANSACTIONS HAVE TO BE CONDUCTED WITH THE HELP OF BROKERS

• CAPITAL MARKET

1. MARKET FOR LONG TERM FUNDS EXCEEDING FOR A PERIOD OF ONE YEAR
2. LONG TERM REQUIREMENTS
3. DEALS WITH THE INSTRUMENTS LIKE EQUITY SHARES,DEBENTURES,GOVERNMENT BONDS
4. DIFFERENCE BETWEEN CAPITAL AND MONEY MARKET
5. EACH SINGLE CAPITAL MARKET INSTRUMENT IS OF SMALL AMOUNT.EACH SHARE VALUE IS RS 10 AND EACH DEBENTURE VALUE IS RS 100
6. DEVELOPMENT BANKS AND INSURANCE COMPANIES PLAY A DOMINANT ROLE IN THE CAPITAL MARKET
7. DIFFERENCE BETWEEN CAPITAL AND MONEY MARKET
8. GENERALLY HAVE A SECONDARY MARKET
9. FORMAL PLACE THROUGH STOCK EXCHANGE
10. TO BE CONDUCTED THROUGH AUTHORISED DEALERS