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Assignment on
Comparison between Money market and Capital Market
xth Semester
By
Faizan Akhtar MBAP-F13-1X
Faisal Saeed ...
2
Money Market:
The short term debts and securities sold on the money markets which are known as money market
instruments ...
3
Basis for
Comparison
Money Market Capital Market
Definition Is a component of the financial markets
where short-term bor...
4
Conclusion:
The main aim of the financial market is to channelize the money between parties in which Money
Market and Ca...
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Difference between money market and capital market

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brief overview of money market and capital market

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Difference between money market and capital market

  1. 1. 1 Assignment on Comparison between Money market and Capital Market xth Semester By Faizan Akhtar MBAP-F13-1X Faisal Saeed MBAP-F13-1X Hina Shaheen MBAP-F13-1X Ammara Ch MBAP-F13-1X MASTERS IN BUSINESS ADMINISTRATION Faculty of Management Sciences THE SUPERIOR UNIVERSITY LAHORE
  2. 2. 2 Money Market: The short term debts and securities sold on the money markets which are known as money market instruments have maturities ranging from one day to one year and are extremely liquid. Treasury bills, federal agency notes, certificates of deposit, commercial paper, bankers' acceptances, and repurchase agreements are examples of instruments. The suppliers of funds for money market instruments are institutions and individuals with a preference for the highest liquidity and the lowest risk. Money Market is unsystematic market and so the trading is done off exchange, i.e. Over The Counter between two parties by using phones, email, fax, online, etc. It plays an important role in the circulation of short term funds in the economy. It helps the industries to fulfill their working capital requirement. 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 includes 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.
  3. 3. 3 Basis for Comparison Money Market Capital Market Definition Is a component of the financial markets where short-term borrowing takes place. Is a component of financial markets where long-term borrowing takes place. Time Period The money market make an agreement for borrowing and lending of short term funds which shows time period is one year or less than one year. The capital market compact in borrowing and lending of long term funding which means the time period is more than one year. Credit Instruments Certificate of deposit, Repurchase agreements, Commercial paper, Federal funds, Municipal notes, Treasury bills, Money funds, Foreign Exchange Swaps, short-lived mortgage, Eurodollar deposit, and asset-backed securities. Stocks, Shares, Debentures, bonds, Securities of the Government. Nature of Credit Instruments Homogenous. A lot of variety causes problems for investors. Heterogeneous. A lot of varieties are required. Purpose of Loan Short-term credit required for small investments. Long-term credit required to establish business, expand business or purchase fixed assets. Basic Role Liquidity adjustment Putting capital to work Institutions Central banks, Commercial banks, Acceptance houses, Nonbank financial institutions, Bill brokers, etc. Stock exchanges, Commercial banks and Nonbank institutions, such as Insurance Companies, Mortgage Banks, Building Societies, etc. Risk In money market, risk factor is very small because time period is less than one year is given so defaulter have less time to default that's way the risk is minimized. In capital market, the risk is more as compare to in money market. the reason behind this is the time period. the maturity of more than one year provides more time for default. but in capital market risk is differs both in nature and degree. Market Regulation Commercial banks are closely regulated to prevent occurrence of a liquidity crisis. Institutions are regulated to keep them from defrauding customers. Relation with Central Bank Closely related to the central banks of the country. Indirectly related with central banks and feels fluctuations depending on the policies of central banks. Return on Investment There is return on investment is less. On the other hand comparatively high. Merit Increases liquidity of funds in the economy. Mobilization of Savings in the economy.
  4. 4. 4 Conclusion: The main aim of the financial market is to channelize the money between parties in which Money Market and Capital Market helps 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 world economy. They fulfill the long term and short term capital requirements of the individual, firms, corporate and government. They provide good returns which encourages investments.

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