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Business Environment -3 MBA Galgotias University 1

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  • Business Environment -3MBAGalgotias University*

  • Capital MarketIt is market for funds with tenure greater than one year.This consist of equity market and debt market.There are organized capital market and unorganized capital market.Financial market consist of capital market and money market.

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  • Money MarketMoney market is market for loans or financial assets with a tenure of less than a year.Money market instruments are call money, notice money, term money, treasury bills, commercial papers, certificate of deposits, repo market, commercial and trade bill, money market mutual funds etc.*

  • Call moneyIt is basically interbank market for the very short duration where the lender can get back his money by giving a call to the borrower.Minimum duration is overnightIf the duration is 14 days it is called notice money, if it is 15 days or more it is called term money.*

  • Treasury billsIt is an instrument used by the government to borrow money to meet any temporary shortfall in the revenue.There are issued for 91 days, 182 days or 364 days with the minimum amount of face value is 1,00,000 rupee.They are sold at the discounted rate in the market.*

  • Difference between capital market and money market-1Duration of fund is less than one year for money market where as for capital market it is greater than one year.Money market funds are provided for current business need, for working capital or short term needs of the government whereas capital market funds are used for fixed capital requirement or the long term needs of the government.*

  • Difference between capital market and money market-2Instruments used in capital market are shares, debentures, bonds etc., in the money market the instruments used are treasury bill, certificate of deposit, commercial papers, bill of exchange etc.Value of the instruments are very high in the money market than in the capital market.Generally there are no secondary market for money market instruments.*

  • Difference between capital market and money market-3In the money market, transactions are done mostly over phones or other modes of communication, a formal place is unnecessary. In capital market authorized dealers do the transactions. Development banks, insurance companies are the dominant players in the capital market. RBI, commercial banks, discount houses, acceptance houses are the major players in the money market.

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  • Primary and secondary market Primary market is the market for new issues of shares, bonds and debentures.Secondary market is the market where the existing or already issued and outstanding shares, bonds and debentures are traded.Debentures are usually secured and its holders can claim companys asset in case the company got liquidated.

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  • Unorganized capital marketIt consists of moneylender and indigenous bankers.The rate of interest charged is extremely high.Most of the time the money is used for consumption purpose.Lack of uniformity in lending practice exists.Usually people who do not get money from organized market approach this market.It is outside the effective government control.

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  • Role of capital market in IndiaMobilization and productive utilization of savings.Facilitate capital formation.Rational allocation of scarce resources.Avenue for investors.Enhances the technological upgradation.Increases productivity and economic welfare.

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  • Gilt-edged marketIt is a market for securities issued by the government or semi-government bodies.It is considered to be 100% secured without any risk.Securities issued by the central and state government, city corporations, port trusts, state electricity board, public sector undertakings are part of it.

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  • Deficiencies in the capital marketLack of diversity of financial instruments.Lack of proper control over brokers and sub-brokers.Prevalence of insider trading and front running.High transaction costs.Manipulation of securities prices.Passive role of public financial institutions in checking malpractices.Lack of control over fair disclosure of financial information.

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