what is the similarities between Capital arket and Money Market.
Answers
Money Market securities are less risky compared to Capital Market securities because they are issued for a shorter period and involve lower volatility. Money Markets are highly liquid compared to Capital Markets. Money Market helps in meeting short-term credit requirements of the companies such as working capital etc.Capital Market:
Capital Markets are financial markets for the buying and selling of long-term debt or equity backed securities. The primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a platform for the trading of securities. Securities which are traded in Capital Market include stocks, bonds, debentures, etc. The maturity period of securities in Capital Market is more than one year or irredeemable (i.e. without maturity). Capital Market is divided into two major categories:
Primary Market: Primary market is the one in which newly issued securities are subscribed by the public. It is also called as IPO Market. Primary Market also includes the issue of further capital by companies whose shares are already listed on stock exchanges. There are different types of intermediaries which operate in this market in order to assist in completing transactions. Some of the critical intermediaries are Merchant Bankers, Brokers, Debenture Trustee, Bankers, Portfolio Managers, Registrar to Issue, Share Transfer Agents etc. All of these intermediaries are regulated by SEBI.
Secondary Market: A market where already issued securities are traded among investors. In this market, investor purchases a security from another investor rather than the issuer, subsequent to the original issuance in the primary market.
Money Market:
Money Market is a market for short-term financial assets which can be turned over quickly at low cost. A short-term financial asset in this context may be construed as any financial asset which can be quickly converted into money with minimum transaction cost within a period of one year.
Trade Credit, Commercial Paper, Certificate of Deposit, Treasury Bills are some examples of the short-term debt instruments. Money Market securities are very liquid in nature, and hence, their redemption period is restricted to one year. Although the return of investment in money market securities are low compared to Capital Market securities, but they are comparatively safer than Capital Market securities. Trading in Money Market takes place off the exchange, i.e. Over The Counter (OTC) between two parties.
Money Market is characterized by two segments:
Organized Segment: Organised Money Market is subject to tight control by the Reserve Bank of India. They function under fairly rigid and complex rules. Some of the participants of organized money market are Banks, NBC’s, and Co-operative Societies etc.
Unorganized Segment: Unorganised Segment is primarily used by borrowers who are not able to get credit from the organized money market. Unorganized Money Market has comparatively flexible terms, informal procedures, and higher interest rate for borrowers etc. Some of the participants of the unorganized money market are Money Lenders, Nidhi Company, Chit Fund Company etc.
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