A market may be defined as an institutions or arrangements that facilitates the purchase and sale of goods ,services and others things.

A market may be defined as an institutions or arrangements that facilitates the exchange of financial instruments including loans and deposits, corporate stocks and bonds, government bonds ,and more instruments.

It is market in which people trade financial securities, commodities.

Financial Market helps in achieving the balanced economy growth.

It helps in the transfer of funds from potential savers to bankers.

It eliminate the need to search for each others.

Markets actors can acts as the borrowers and investors.

Money market is a market for short term loans generally less than 1 year.

It is a market where the demand for and supply of short term funds meet.

Money market may be classified as:Lenders and Borrowers

Lender

RBI

Commercial Banks

Brokers

Borrowers

Commercial Banks

Stock Brokers

Other Financial institutions

Business Houses

Governments

According to RBI “It is a center for dealings ,mainly of a short term character , in monetary asset, it meets the short term requirements of borrowers and provides liquidity or cash to the lenders.”

According to Crowther “The money market is the collective name given to the various firms and institutions that deal in the various grades of near Money. ”

Constituents of Money Market

Heterogeneous Market

Dealers of Money Market

Short-term Loans

Different from Capital Market

Settlements of transactions

Encourages economic growth

Proper allocation of resources

Treasury bills

Commercial bills

Certificate of deposits

Call money

Repurchase agreement

Commercial papers

This bill is also called T-bill or promissory note. These are the short term debt instruments used by the govt. to obtain funds. The govt. promises to pay the amount to the bearer of the instrument on the due date. There is no fixed rate of interest payable on T-bills.

It is a sub-market in which the trade bills or commercial bills are traded. These bills are drawn by the drawer(seller) on the drawee(buyer) for the value of goods delivered to him.

It is a common instruments used in credit purchase and sale. These have short term maturity period generally 90 days and can be discounted with bank before maturity period.

Certificate of deposit is a bearer certificate or document of title of funds that remain on deposit at the bank for a specified period at a specified rate of interest. It can be transferred easily. The time ranges from 90 days to 1 year.

Call money market is a market where day to day surplus funds of banks are traded. The maturity of the loans varies between one day or overnight but not exceeding two weeks. They are usually unsecured. These are repayable within a short period. The rate of interest is very low and varies from day to day.

Commercial papers are short term promissory notes with a fixed maturity. This was introduced in January 1990 in India. These were introduced to enable highly rated corporate borrowers to diversify their source of short term borrowings. RBI has issued the guidelines to regulate the issue of commercial papers.

Repo is a money market instruments which helps in collateralised short term borrowings and lending through sale and purchase operations in debt instruments.

It is an agreement between a seller and a buyer in which securities are sold by their holders(sellers) to the investors (purchaser) with an agreement to repurchase them at a predetermined rate.

The term capital market refers to the market for medium and long term funds. It includes all the institutions, organization which provide long term and medium term funds.

It does not include the institutions which provide funds for short period.

Instruments of capital market are shares, debentures, bonds , mutual funds, public deposits etc.

According to V.A. Avadhani— “Capital market is a wide term used to comprise all operations in all the new issues and stock market.”

Deals in long term investments

Utilises Intermediaries

Govt. rules and regulations

Effectively allocate the financial resources

To mobilise the financial resources at national level

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

This market is concerned with new issues. Therefore, the primary market is also called NEW ISSUE MARKET.

The 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.

It deals with new securities.

Prices of new issues are influenced by the price movements in stock exchanges.

The sale of securities is made only once at the time of issues.

It does not have any tangible form.

The 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.

It Creates Liquidity

It Comes After Primary Market

It Has A Particular Place

It Encourage New Investments

Capital

market

Ownership

securities

Equity

shares

Preference

shares

Creditorship

securities

Debentures

Equity shares Equity shares are those shares which are

held by the owners of a corporate entity. These are known as ordinary shares. They occupy a primary position. The equity shareholder enjoy all rewards and risks associated with such ownership.

Risk capital

Fluctuating dividend

Fluctuating market value

Growth prospects

Voting rights

Preference shares Preference shares that carry preferential

rights in comparison with ordinary shares are called preference shares. These are the rights regarding payment of dividend the distribution of the assests of the company in the event of its winding up.

Cumulative and non cumulative shares

Redeemable and irredeemable shares

Convertible and non convertible shares

Participating and non participating shares

DebenturesDebentures are another kind of security

traded in the capital market. It is an acknowledgement of a debt by a company usually issued under a common seal,andunsecured or secured by a fixed or floating charge on the assests of the company.

A fixed rate of interest is paid on debentures.

The interest gained on them is fully taxable.

Redeemable at a premium.

Traded on the stock exchanges.

Naked or unsecured debentures

Secured or mortgage debentures

Guranteed debentures

Registered debentures

Unregistered debentures

Convertible debentures

Nonconvertible debentures

Redeemable debentures

Irredeemable debentures