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Financial Management (FIN 4)

1. The document discusses the differences between money markets and capital markets. 2. Money markets deal in short-term financial instruments like treasury bills and commercial paper that mature within one year, while capital markets trade long-term securities like stocks and bonds. 3. Key differences are that money markets are less organized than capital markets and have higher liquidity but lower risk and returns.

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carina
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111 views

Financial Management (FIN 4)

1. The document discusses the differences between money markets and capital markets. 2. Money markets deal in short-term financial instruments like treasury bills and commercial paper that mature within one year, while capital markets trade long-term securities like stocks and bonds. 3. Key differences are that money markets are less organized than capital markets and have higher liquidity but lower risk and returns.

Uploaded by

carina
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Agustin, Mellrose C.

Alfonso, Carina C.
Maturingan, Jayson F.
Moral, Julius Leo C.
Suarez, Jemar C.
Financial Management (FIN 4)

a. the working of international money and capital markets and the opportunities that they offer
to companies as a source of finance and as a repository for the investment of funds

Financial market is a marketplace wherein investors deal in with the financial instruments.
Financial markets play a vital role in facilitating the smooth operation of capitalist economies by
allocating resources and creating liquidity for businesses. It creates securities products that provide a
return for those who have excess funds (Investors/lenders) and make these funds available to those
who need additional money (borrowers). And are made by buying and selling numerous types of
financial instruments including equities, bonds, currencies, and derivatives.
It can be grouped as money market and capital market. Both of the markets are very important
in the financial sector, as a source of funds and as a repository for the investment of funds.

Definition of Money Market


An unorganized arena of banks, financial institutions, bill brokers, money dealers, etc. wherein
trading on short-term financial instruments is being concluded is known as Money Market. These
markets are also known by the name wholesale market.
Trade Credit, Commercial Paper, Certificate of Deposit, Treasury Bills are some examples of the
short-term debt instruments. They are highly liquid (cash equivalents) in nature, and that is why their
redemption period is limited to one year. They provide a low return on investment, but they are quite
safe trading instruments.
Money Market is an unsystematic market, and so the trading is done off the exchange, for
example, Over The Counter (OTC) between two parties by using phones, email, fax, online, etc. It plays a
major role in the circulation of short-term funds in the economy. It helps the industries to fulfil their
working capital requirement.
Definition of Capital Market
A type of financial market where the government or company securities are created and traded
for the purpose of raising long-term finance to meet the capital requirement is known as Capital Market.
The securities which are traded include stocks, bonds, debentures, euro issues, etc. whose maturity
period is not limited up to one year or sometimes the securities are irredeemable (no maturity). The
market plays a revolutionary role in circulating the capital in the economy between the suppliers of
money and the users. The Capital Market works under full control of Securities and Exchange Board to
protect the interest of the investors.
The Capital Market includes both dealer market and auction market. It is broadly divided into
two major categories: Primary Market and Secondary Market.
Primary Market: A market where fresh securities are offered to the public for subscription is
known as Primary Market.
Secondary Market: A market where already issued securities are traded among investors is
known as Secondary Market.

Key Differences Between Money Market and Capital Market


The following points are substantial, as far as the difference between money market and capital market
is concerned:

1. The place where short-term marketable securities are traded is known as Money Market. Unlike
Capital Market, where long-term securities are created and traded is known as Capital Market.
2. Capital Market is well organized which Money Market lacks.
3. The instruments traded in money market carry low risk, hence, they are safer investments, but
capital market instruments carry high risk.
4. The liquidity is high in the money market, but in the case of the capital market, liquidity is
comparatively less.
5. The major institutions that work in money market are the central bank, commercial bank, non-
financial institutions and acceptance houses. On the contrary, the major institutions which
operate in the capital market are a stock exchange, commercial bank, non-banking institutions
etc.
6. Money market fulfils short-term credit requirements of the companies such as providing
working capital to them. As against this, the capital market tends to fulfil long-term credit
requirements of the companies, like providing fixed capital to purchase land, building or
machinery.
7. Capital Market Instruments give higher returns as compared to money market instruments.
8. Redemption of Money Market instruments is done within a year, but Capital Market
instruments have a life of more than a year as well as some of them are perpetual in nature.

Conclusion
The main aim of the financial market is to channelize the money between parties in which
Money Market and Capital Market help by taking surplus money from the lenders and giving them to
the borrower who needs it. Millions of transactions take place around the world on a daily basis.
Both of them work for the betterment of the global economy. They fulfil the long term and short
term capital requirements of the individual, firms, corporate and government. They provide good
returns which encourage investments.

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