Capital and Money Market

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Gahlot institute of management studies and research

Gahlot institute of management studies and researchPresentation topic:Capital market And money market

Presented by:Jaya gupta and amit gupta

1Capital market2The capital market is a market which deals in long term loan.

It supplies industries with fixed and working capital and finances medium term and long term borrowing of the central, state and local government.

The capital market deals in ordinary stock are share and debentures of corporation, and bonds and securities of governments.

Capital market3The primal role of this market is to make investment from investors who have surplus funds to the ones who are running a deficit.

Capital market, cont.41. Link between savers and investment opportunities.

2. Deals in long term investment.

3.Utilities intermediaries.

4.Determinant of capital formation.

5.Government rules and regulation.

Features of capital market5There are two types of capital market:

1.primary market,

2.secondary marketTypes of capital market6This market is concerned with new issues. Therefore, the primary market is also called NEW ISSUE MARKET.

It is that market in which shares, debentures and other securities are sold for the first time for collecting long-term capital.

In this market, the flow of funds is from savers to borrowers (industries), hence, it helps directly in the capital formation of the country

Primary market7The money collected from this market is generally used by the companies to modernize the plant, machinery and buildings, for extending business, and for setting up new business unit.

Primary market, cont..81.It Is Related With New Issues2.It Has No Particular Place3.It Has Various Methods Of Float Capital: Following are the methods of raising capital in the primary market: i) Public Issue ii) Offer For Sale iii) Private Placement iv) Right Issue v) Electronic-Initial Public Offer4.It comes before Secondary Market

Features of primary market9The secondary market is that market in which the buying and selling of the previously issued securities is done. The transactions of the secondary market are generally done through the medium of stock exchange.

The chief purpose of the secondary market is to create liquidity in securities.

Secondary market10If an individual has bought some security and he now wants to sell it, he can do so through the medium of stock exchange to sell or purchase through the medium of stock exchange requires the services of the broker presently, their are 24 stock exchange in India.Secondary market (cont..)111.It Creates Liquidity

2.It Comes After Primary Market

3.It Has A Particular Place

4.It Encourage New Investments

Features of secondary market12Money market13Money Market is the part of financial market where instruments with high liquidity and very short-term maturities are traded. It's the place where large financial institutions, dealers and government participate and meet out their short-term cash needs.

They usually borrow and lend money with the help of instruments or securities to generate liquidity. Due to highly liquid nature of securities and their short-term maturities, money market is treated as safe place.

Money market14The Reserve Bank of India (RBI) plays a key role of regulator and controller of money market. The intervention of RBI is varied curbing crisis situations by reducing key policy rates or curbing inflationary situations by rising key policy rates such as Repo, Reverse Repo, CRR etc.

Role of reserve bank of india151.Treasury Bills (T-Bills).

2.Certificate of Deposits (CDs).

3.Commercial papers (cps)

4.repurchase agreement (repo)

5.bankers acceptance

Instrument of money market161. Maturity Period:The money market deals in the lending and borrowing of short-term finance (i.e., for one year or less), while the capital market deals in the lending and borrowing of long-term finance (i.e., for more than one year).

2. Credit Instruments:The main credit instruments of the money market are call money, collateral loans, acceptances, bills of exchange. On the other hand, the main instruments used in the capitalmarket are stocks, shares, debentures, bonds, securities of the government.

Money market is distinguished from capital market173. Nature of Credit Instruments:The credit instruments dealt with in the capital market are more heterogeneous than those in money market. Some homogeneity of credit instruments is needed for the operation of financial markets. Too much diversity createsproblems for the investors.

4. Institutions:Important institutions operating in the' money market are central banks, commercial banks, acceptance houses, nonbank financial institutions, bill brokers, etc. Importantinstitutions of the capital market are stock exchanges, commercial banks and nonbank institutions, such as insurance companies, mortgage banks, building societies, etc.

(Cont..)185. Purpose of Loan:The money market meets the short-term credit needs of business; it provides working capital to the industrialists. The capital market, on the other hand, caters the long-term credit needs of the industrialists and provides fixed capital tobuy land, machinery, etc.

6. Risk:The degree of risk is small in the money market. The risk is much greater in capital market. The maturity of one year or less gives little time for a default to occur, so the risk is minimised. Risk varies both in degree and nature throughout the capital market.

(cont..)197. Basic Role:The basic role of money market is that of liquidity adjustment. The basic role of capital market is that of putting capital to work, preferably to long-term, secure and productive employment.

8. Relation with Central Bank:The money market is closely and directly linkedwith central bank of the country. The capitalmarket feels central bank's influence, but mainlyindirectly and through the money market.

(cont..)209. Market Regulation:In the money market, commercial banks are closely regulated. In the capital market, the institutions are not much regulated.