NAME – Snehal S Panchwatkar

ROLL NO – DF 53

BATCH – FY MBA

SUBJECT - FM AND BO (ASSIGNMENT 2)

PROF – DP RANE SIR

Q.1) What is meaning of money market? What are the types of money market
instrument? Explain any two types in detail.
ANS –
The money market refers to trading in very short-term debt investments. At
the wholesale level, it involves large-volume trades between institutions and
traders. At the retail level, it includes money market mutual funds bought by
individual investors and money market accounts opened by bank customers.
The money market refers to trading in very short-term debt investments. At
the wholesale level, it involves large-volume trades between institutions and
traders. At the retail level, it includes money market mutual funds bought by
individual investors and money market accounts opened by bank customers.
The money market is one of the pillars of the global financial system. It involves
overnight swaps of vast amounts of money between banks and the U.S.
government. The majority of money market transactions are wholesale
transactions that take place between financial institutions and companies.

Institutions that participate in the money market include banks that lend to
one another and to large companies in the eurocurrency and time deposit
markets; companies that raise money by selling commercial paper into the
market, which can be bought by other companies or funds; and investors who
purchase bank CDs as a safe place to park money in the short term. Some of
those wholesale transactions eventually make their way into the hands of
consumers as components of money market mutual funds and other
investments.

In the wholesale market, commercial paper is a popular borrowing mechanism

because the interest rates are higher than for bank time deposits or Treasury
bills, and a greater range of maturities is available, from overnight to 270
days.1 However, the risk of default is significantly higher for commercial paper
than for bank or government instruments.

Individuals can invest in the money market by buying money market funds,
short-term certificates of deposit (CDs), municipal notes, or U.S. Treasury bills.
For individual investors, the money market has retail locations, including local
banks and the U.S. government's TreasuryDirect website. Brokers are another
avenue for investing in the money market.

The U.S. government issues Treasury bills in the money market, with maturities
ranging from a few days to one year.2 Primary dealers buy them in large
amounts directly from the government to trade between themselves or to sell
to individual investors. Individual investors can buy them directly from the
government through its TreasuryDirect website or through a bank or a broker.
State, county, and municipal governments also issue short-term notes.

Money market funds seek stability and security with the goal of never losing
money and keeping net asset value (NAV) at $1. This one-buck NAV baseline
gives rise to the phrase "break the buck," meaning that if the value falls below
the $1 NAV level, some of the original investment is gone and investors will
lose money. However, this scenario only happens very rarely, but because
many money market funds are not FDIC-insured, meaning that money market
funds can nevertheless lose money.

 Types of money market instrument –

Following are the types of Money Market Instruments:
• Promissory Note: A promissory note is one of the earliest type of bills. ...
• Bills of exchange or commercial bills. ...
• Treasury Bills (T-Bills) ...
• Call and Notice Money. ...
• Inter-bank Term Market. ...
• Commercial Papers (CPs) ...
• Certificate of Deposits ( CD's ) ...
• Banker's Acceptance (BA)

• Money Market Funds

The wholesale money market is limited to companies and financial

institutions that lend and borrow in amounts ranging from $5 million to
well over $1 billion per transaction. Mutual funds offer baskets of these
products to individual investors. The net asset value (NAV) of such funds is
intended to stay at $1. During the 2008 financial crisis, one fund fell below
that level.3 That triggered market panic and a mass exodus from the funds,
which ultimately led to additional restrictions on their access to riskier
investments.

• Money Market Accounts

Money market accounts are a type of savings account. They pay interest,
but some issuers offer account holders limited rights to occasionally
withdraw money or write checks against the account. (Withdrawals are
limited by federal regulations. If they are exceeded, the bank promptly
converts it to a checking account.) Banks typically calculate interest on a
money market account on a daily basis and make a monthly credit to the
account.
 In general, money market accounts offer slightly higher interest rates than
standard savings accounts. But the difference in rates between savings and
money market accounts has narrowed considerably since the 2008 financial
crisis. Average interest rates for money market accounts vary based on the
amount deposited. As of August 2020, the best-paying money market
account with no minimum deposit offered 0.99% annualized interest.

Q.2) What are the major reforms in money market in past few years ?
ANS –
The important interest rates in India are-Bank rate, Medium-term lending rate,
Prime Lending rate, Bank Deposit rate, Call rate, Certificate of Deposit rate,
Commercial paper rate etc. This deregulation got a major push after the
economic liberalisation of 1991.
Reforms in the Indian Money Market:
• 1. Development of Money Market Instruments: ...
• Deregulation of Interest Rates: ...
• Institutional Development: ...
• Money Market Mutual Funds: ...

• Permission to Foreign Institutional Investors (FII):

The main thrust of the financial sector reforms has been the creation of
efficient and stable financial institutions and development of the markets,
especially the money and government securities market. In addition, fiscal
correction was undertaken and reforms in the banking and external sector
were also initiated.
Deregulation of Interest Rates
Interest rates are now subject to market conditions as the ceiling limit on them
have been removed by RBI after 1989.The important interest rates in India
areBank rate, Medium-term lending rate, Prime Lending rate, Bank Deposit rate,
Call rate, Certificate of Deposit rate, Commercial paper rate etc. This
deregulation got a major push after the economic liberalisation of 1991.
Chakravarty Committee was a strong proponent of free and flexible interest
rates to promote savings, investments, government financial system and
stability. RBI removed the upper ceiling of 16.5% and instead fixed a minimum
of 16% per annum. The rates were further relaxed after the Narasimhan
Committee report in 1991.
Reforms in Call and Term money market
The reforms in call and term money market were done to infuse more liquidity
into the system and enable price discovery. RBI undertook several important
steps to check the constraints and remove them systematically. It was in October
1998, RBI announced that non-banking financial institutions should not
participate in call/term money market operations and it should purely be an
interbank operating segment and encouraged other participants to migrate to
collateralised segments to improve stability. Also, reporting of all call/notice
money market transactions through negotiated dealing system within 15
minutes of conclusion of transaction was made mandatory. The volume of
operations in this segment was not increased much even after the reforms.
Introduction of new money market instruments
RBI introduced many new market instruments to diversify the market. These
were certificates of deposit in 1989, commercial papers in 1990 and interbank
participation certificates with/without risk in 1988.
Setting up Discount and Finance House of India
Discount and Finance House of India was set up in 1988 to impart more liquidity
and also further develop the secondary market instruments. However,
maturities of existing instruments like CDs and CPs were gradually shortened to
encourage wider participation. Likewise ad hoc treasury bills were abolished in
1997 to stop automatic monetisation of fiscal deficit.
Introducing Liquidity Adjustment Facility
RBI introduced a Liquidity Adjustment Facility in June 2000 which was operated
through fixed repo and reverse repo rates. This helped establishment of interest
rate as an important monetary instrument and granted greater flexibility to RBI
to respond to market needs and suitably adjust liquidity in the market. Repo and
Reverse Repo rates were introduced in 1992 and 1996 respectively.
Refinance by RBI
This is a potent tool by RBI to meet the any liquidity shortages and for credit
control to select sectors. The export credit refinance facility to banks is provided
under Section 17(3) of RBI Act 1934. It is available to all scheduled commercial
banks who are authorised to deal in foreign exchange and have extended export
credit. The SCBs are prvided export credit to the tune of 50% of the outstanding
export credit. The concept of directed credit was also changed as the
Narasimhan Committee recommended reduction of directed credit from 40 to
10%. It also suggested narrowing of priority sector and realigning focus to small
farmers and low income target groups. The refinance rate is linked to bank rate.
Regulation of Non-Banking Financial Companies
RBI Act was amended in 1997 to bring the NBFCs under its regulatory framework.
A NBFC is a company registered under Companies Act, 1956 and is involved in
making loans and advances, acquisition of shares, stocks, bonds, securities
issued by government etc. They are similar to banks but are different from the
latter as they cannot accept demand deposits and cannot issue cheques. They
have to be registered with RBI to operate within India. There are a host of
regulations which NBFCs have to follow to smoothly operate within India like
accept deposit for a minimum period, cannot accept interest rate beyond the
prescribed rate given by RBI.
Debt Recovery
RBI has set up special Recovery Tribunals which provide legal assistance to
banks for recovery of dues.
Defects of the Indian Money Market:
1. Existence of Un-organised Money Market:
The most important defect of the Indian money market is the existence of
unorganised segment. In this segment of the market the purpose as well
period are not clearly demarcated. In fact, this segment thrives on this
characteristic.

This segment undermines the role of the RBI in the money market. Efforts of
RBI to bring indigenous bankers within statutory frame work have not yielded
much result.

2. Lack of Integration:
Another important deficiency is the lack of integration of different segments or
functionaries. However, with the enactment of the Banking Companies
Regulation Act 1949, the position has changed considerably. The RBI is now
almost fully effective in this area under various provisions of the RBI Act and
the Banking Companies Regulation Act.

3. Disparity in Interest Rates:

There have been too many interest rates prevailing in the market at the same
time like borrowings rates of government, the lending rates of commercial
banks, the rates of co-operative banks and rates of financial institutions.

This was basically due to lack of mobility of funds from one sub- segment to
another. However, with changes in financial sector the different rates of
interest have been quickly adjusting to changes in the bank rate.

4. Seasonal Diversity of Money Market:

A notable characteristic is the seasonal diversity. There are very wide
fluctuations in the rates of interest in the money market from one period to
another in the year. November to June is the busy period. During this period
crops from rural areas are moved to cities and parts. The wide fluctuations
create problems in the money market. The Reserve Bank of India attempts to
lessen the seasonal fluctuations in money market.

5. Lack of Proper Bill Market:

Indian Bill market is an underdeveloped one. A well orgnaised bill market or a

discount market for short term bills is essential for establishing an effective link
between credit agencies and Reserve Bank of India. The reasons for this
situation are historical, like preference for cash to bills etc.

Reserve Bank of India started making efforts in this direction in 1952. However,
a new and proper bill market was introduced in 1970. There has been
substantial improvement since then.

Reforms in the Indian Money Market:

Since its inception, particularly after independence, the Reserve Bank of India
has been making efforts to remove the defects of the Indian money market.
The organised sector of the market is relatively well knit and differences
between various sectors of the market have been reduced.
The bill market scheme was one very important step. But the Indian money
market is still centred on the call money market although efforts have been
made to develop secondary market in post 1991 period.

Vaghul Committee on Money Market, Sukhmoy Chakravarty Committee on the

Review of the working of the Monetary System and Narasimham Committee
on the working of Financial System has made important recommendations on
the Indian money market. The Reserve Bank of India has started the process of
implementation of these recommendations.

Q.3)Write short notes on –

a)Efficient money market –

Meaning of Money Market:

When we talk about any market it comes to our mind that a market consists of
many shops, outlets, stalls, hawkers and now newly developed markets known
as malls. Very obvious all these are essential parts of any market but when we
talk about Money Market it should be taken that there are hundreds of shops
selling money.

No doubt there are such places also where we happen to see the currency
notes and coins piled up on a table or counter but all these shops of money are
just dealing in exchange of money on two accounts: First they deal with
exchanging old, torn, mutilated , and such currency notes which are not usually
accepted by common shopkeepers.

All such type of shops are meant to deal with day to day currency difficulties of
common man but cannot be considered as a part of Money Market. A Money
Market is an important factor for the development of economy of any country.
The money market largely is tool for the development of Industry,
Infrastructure, Agriculture, Trading and commerce of any country. The money
market is entirely different where no visible shops are counters exist.

It comprises of different types of companies, institutions, firms, individuals

who are either in need of money or are having surplus money. The entities in
need of money seek financial help from this market against some payables and
the entities having surplus funds take opportunity to deploy their surplus funds
in gainful way. All these entities deal through a systematic way devised for this
purpose which is known as money market.

Most of the known economists have defined money market in their own
observations such as:
As per Crowther, “The money market is a name given to the various firms and
institutions that deal in the various grades of near money.” ADVERTISEMENTS:

Very simple Mr. Crowther has said that money market is operated by various
firms and institutions which are dealing with not money but various grades of
near money. Now what are these various grades of money.

If you think of money what comes to your mind? A currency Note or Coin?
What about a piece of Gold, Silver, Diamond, a Piece of Land, a building, a
factory, some partnership with any business, some shares of a reputed
company held by you. Go on counting all these forms of different kinds of
money as they can be negotiated at any moment if one desires to convert
these into hard cash.

Mr. Crowther is right that all those engaged in money market deal with such
items which are near to money in other words all those items are near to
money which can easily be converted into money.

In India the Reserve Bank of India is the sole authority to regulate all financial
and economic matters.

With regard to Money Market the RBI has defined a Money Market as:

“The Money Market is the centre for dealing mainly of short character, in
monetary assets; it meets the short term requirements of borrowers and
provides liquidity or cash to the lenders. It is a place where short term surplus
investible funds at the disposal of financial and other institutions and
individuals are bid by borrowers, again comprising institutions and individuals
and also by the Government.”

The basic concept of money market can be identified with the help of above
definitions. Having a careful consideration of RBI’s definition it becomes clear
that the main role in the money market is played by the financial institutions
including well organized banking system.
In view of Mr. Crowther saying various grades of near money it includes various
types of financial instruments which are used for transactions in the money
market. Money market is an important part of the economy. But it is mainly
used for short term monetary transactions. In short a money market provides
facility for adjusting liquidity to the banks, business houses, nonbanking
financial companies and institutions and other financial institutions along with
investors.In view of above it appears that Nadler and Shipman had rightly
observed; “That a Money market is distinct but supplementary to the
commercial banking system”.

The money market plays an important part in the economy of any nation
and has specific functions particularly in short term financing. b) T- Bills –

ANS –

Treasury Bills are short term (up to one year) borrowing instruments of the
Government of India or by a central authority of any country which enable
investors to park their short term surplus funds while reducing their market
risk. They are auctioned by the Reserve Bank of India (RBI) at regular intervals
and issued at a discount to face value.
The bill market is a sub-market of the money market in India. There are two
types of bills viz. Treasury Bills and commercial bills. While Treasury Bills or
TBills are issued by the Central Government; Commercial Bills are issued by
financial institutions.’

T-bills have an advantage over the other bills such as zero risk weightage
associated with them. They are issued by the government and sovereign
papers have zero risks assigned to them, High liquidity because 91 days and 36
days are short term maturity.

Types of Treasury Bills

Treasury Bills are basically instruments for short term (maturities less than one
year) borrowing by the Central Government. Treasury Bills were first issued in
India in 1917. At present, the active T-Bills are 91-days T-Bills, 182-day T-Bills
and 364-days T-Bills. The 91-day T-Bills are issued on a weekly auction basis
while 182-day T-Bill auction is held on Wednesday preceding Non-reporting
Friday and 364-day T-Bill auction on Wednesday preceding the Reporting
Friday. In 1997, the Government had also introduced the 14-day intermediate
treasury bills. Auctions of T-Bills are conducted by RBI.
Understanding Treasury Bills

The U.S. government issues T-bills to fund various public projects, such as the
construction of schools and highways. When an investor purchases a T-Bill, the
U.S. government is effectively writing an IOU to the investor. T-bills are
considered a safe and conservative investment since the U.S. government
backs them.

T-Bills are normally held until the maturity date. However, some holders may
wish to cash out before maturity and realize the short-term interest gains by
reselling the investment in the secondary market.

T-Bill Maturities
T-bills can have maturities of just a few days or up to a maximum of 52 weeks,
but common maturities are 4, 8, 13, 26, and 52 weeks. 3 The longer the
maturity date, the higher the interest rate that the T-Bill will pay to the
investor.

T-Bill Redemptions and Interest Earned

T-bills are issued at a discount from the par value (also known as the face
value) of the bill, meaning the purchase price is less than the face value of the
bill. For example, a $1,000 bill might cost the investor $950 to buy the product.

When the bill matures, the investor is paid the face value—par value—of the
bill they bought. If the face value amount is greater than the purchase price,
the difference is the interest earned for the investor. T-bills do not pay regular
interest payments as with a coupon bond, but a T-Bill does include interest,
reflected in the amount it pays when it matures. 4

T-Bill Tax Considerations

The interest income from T-bills is exempt from state and local income taxes.
However, the interest income is subject to federal income tax. Investors can
access the research division of the TreasuryDirect website for more tax
information.5

Purchasing T-bills
Previously issued T-bills can be bought on the secondary market through a
broker. New issues of T-Bills can be purchased at auctions held by the
government on the TreasuryDirect site. T-bills purchased at auctions are priced
through a bidding process. Bids are referred to as competitive or
noncompetitive bids.2 Further bidders can be indirect bidders who buy through
a pipeline such as a bank or a dealer. Bidders may also be direct bidders
purchasing on their own behalf. Bidders range from individual investors to
hedge funds, banks, and primary dealers.

A competitive bid sets a price at a discount from the T-bill's par value, letting
you specify the yield you wish to get from the T-Bill. Noncompetitive bids
auctions allow investors to submit a bid to purchase a set dollar amount of
bills. The yield investors receive is based upon the average auction price from
all bidders.2

Competitive bids are made through a local bank or a licensed broker. Individual
investors can make noncompetitive bids via the TreasuryDirect website. Once
completed, the purchase of the T-Bill serves as a statement from the
government that says you are owed the money you invested, according to the
terms of the bid.6

T-Bill Investment Pros and Cons

Treasury Bills are one of the safest investments available to the investor. But
this safety can come at a cost. T-bills pay a fixed rate of interest, which can
provide a stable income. However, if interest rates are rising, existing T-bills fall
out of favor since their rates are less attractive compared to the overall
market. As a result, T-bills have interest rate risk meaning there is a risk that
existing bondholders might lose out on higher rates in the future.

Although T-bills have zero default risk, their returns are typically lower than
corporate bonds and some certificates of deposit. Since Treasury bills don't pay
periodic interest payments, they're sold at a discounted price to the face value
of the bond. The gain is realized when the bond matures, which is the
difference between the purchase price and the face value. 5

However, if they're sold early, there could be a gain or loss depending on

where bond prices are trading at the time of the sale. In other words, if sold
early, the sale price of the T-bill could be lower than the original purchase
price.3
Pros
• Zero default risk since T-bills have a U.S. government guarantee.
• T-bills offer a low minimum investment requirement of $100.
• Interest income is exempt from state and local income taxes but subject
to federal income taxes.

• Investors can buy and sell T-bills with ease in the secondary bond
market.

Cons
• T-Bills offer low returns compared with other debt instruments as well
as when compared to certificates of deposits (CDs).
• The T-Bill pays no coupon—interest payments—leading up to its
maturity.
• T-bills can inhibit cash flow for investors who require steady income.
• T-bills have interest rate risk, so, their rate could become less attractive
in a rising-rate environment.

What Influences T-Bill Prices?

T-Bill prices fluctuate similarly to other debt securities. Many factors can
influence T-Bill prices, including macroeconomic conditions, monetary policy,
and the overall supply and demand for Treasuries. 7

Maturity Dates
T-Bills with longer maturity dates tend to have higher returns than those with
shorter maturities. In other words, short-term T-bills are discounted less than
longer-dated T-bills. Longer-dated maturities pay higher returns than
shortdated bills because there's more risk priced into the instruments meaning
there's a greater chance that interest rates could rise. Rising market interest
rates make the fixed-rate T-bills less attractive.

Market Risk

Investors' risk tolerance affects prices. T-Bill prices tend to drop when other
investments such as equities appear less risky, and the U.S. economy is in an
expansion. Conversely, during recessions, investors tend to invest in T-Bills as a
safe place for their money spiking the demand for these safe products. Since
Tbills are backed by the full faith and credit of the U.S. government, they're
seen as the closest thing to a risk-free return in the market.8

The Federal Reserve

The monetary policy set by the Federal Reserve through the federal funds rate
has a strong impact on T-Bill prices as well. The federal funds rate refers to the
interest rate that banks charge other banks for lending them money from their
reserve balances on an overnight basis. The Fed will increase or decrease the
fed funds rate in an effort to contract or expand the monetary policy and the
availability of money in the economy. A lower rate allows banks to have more
money to lend while a higher fed funds rate decreases money in the system for
banks to lend.8

As a result, the Fed's actions impact short-term rates including those for T-bill.
A rising federal funds rate tends to draw money away from Treasuries and into
higher-yielding investments. Since the T-bill rate is fixed, investors tend to sell
T-bills when the Fed is hiking rates because the T-bill rates are less attractive.
Conversely, if the Fed is cutting interest rates, money flows into existing T-bills
driving up prices as investors buy up the higher-yielding T-bills.8

The Federal Reserve is also one of the largest purchasers of government debt
securities. When the Federal Reserve purchases U.S. government bonds, bond
prices rise while the money supply increases throughout the economy as
sellers receive funds to spend or invest. Funds deposited into banks are used
by financial institutions to lend to companies and individuals, boosting
economic activity.9

T-Bill prices tend to rise when the Fed performs expansionary monetary policy
by buying Treasuries. Conversely, T-bill prices fall when the Fed sells its debt
securities.

Inflation
Treasuries also have to compete with inflation, which measures the pace of
rising prices in the economy. Even if T-Bills are the most liquid and safest debt
security in the market, fewer investors tend to buy them in times when the
inflation rate is higher than the T-bill return. For example, if an investor bought
a T-Bill with a 2% yield while inflation was at 3%, the investor would have a net
loss on the investment when measured in real terms. As a result, T-bill prices
tend to fall during inflationary periods as investors sell them and opt for
higher-yielding investments.10

Example of a Treasury Bill Purchase

As an example, let's say an investor purchases a par value of $1,000 T-Bill with
a competitive bid of $950. When the T-Bill matures, the investor is paid $1,000,
thereby earning $50 in interest on the investment. The investor is guaranteed
to at least recoup the purchase price, but since the U.S. Treasury backs T-bills,
the interest amount should be earned as well.

As stated earlier, the Treasury Department auctions new T-bills throughout the
year. On March 28, 2019, the Treasury issued a 52-week T-bill at a discounted
price of $97.613778 to a $100 face value. In other words, it would cost
approximately $970 for a $1,000 T-bill.

Frequently Asked Questions

What are the maturity terms for Treasury bills?
U.S. Treasury bills are short-term government bonds, and are issued with 5
terms: 4; 8; 13; 26; and 52 weeks. 11

What kind of interest payments will I receive if I own a Treasury bill?

The only interest paid will be when the bill matures. At that time, you are given
the full face value. T-bills are zero-coupon bonds that are usually sold at a
discount and the difference between the purchase price and the par amount is
your accrued interest.

How can I buy a treasury bill?

U.S. Treasury bills are auctioned on a regular schedule. Individuals can buy
Tbills from the government using the TreasuryDirect website. It is free to
register, and it will function like a brokerage account that holds your bonds. In
addition to bidding on new issues, You also can set up reinvestments into
securities of the same type and term. For instance, you can use the proceeds
from a maturing 52-week bill to buy another 52-week bill. Certain brokerage
firms may also allow trading in U.S. Treasuries. 6

Where is my paper hard copy of the T-bill I bought?

T-bills and other government bonds are no longer issued on paper and are only
available in digital form through TreasuryDirect or your broker. 7
How are T-bills different from Treasury Notes and Bonds?
T-bills are short-term government debt instruments with maturities of one year
or less, and are sold at a discount without paying a coupon. T-
Notes represent the medium-term maturities of 2, 3, 5, 7, and 10 years. These
are issued at par ($100) and pay semi-annual interest. T-Bonds are otherwise
identical to T-notes but have maturities of 30 years (or longer in some cases).

C)Money market VS Capital market –

ANS-

A financial market is a place where buyers and seller come together to trade in
financial assets such as bonds, stocks, derivatives, currencies and commodities.
The main objective of a financial market is to fix prices for global trade,
increase capital and transfer risk and liquidity.
Thought the financial market has various components; the two most important
components are the money market and capital market. In the money market,
only short-term liquid financial instruments are exchanged. Whereas, in the
capital market, only long term securities are dealt with.
Capital Market plays a significant role in the growth of a country’s economy as
it provides a platform for mobilising the funds. Similarly, the money market
holds a range of operational characteristics. This article will explain the
difference between money market and capital market.

What is the Money Market?

A random course of financial institutions, bill brokers, money dealers, banks,
etc., wherein dealing on short-term financial tools are being settled is referred
to as Money Market. These markets are also called wholesale markets.
In India, money markets serve an essential objective of providing liquid cash to
borrowers and fund providers for a small period of time, while keeping a
balance between the supply and demand short-term funds. The important
money market instruments in India today cover call money, commercial
papers, certificates of deposit, treasury bills, and forward rate agreements.
Money Market is a disorganised market, so the dealing is done off the public
exchange market, i.e. Over The Counter (OTC), within two bodies by using
email, fax, online and phones, etc. It supports the industries to accomplish
their working capital demand by circulating short-term funds in the economy.
Also, explore:

• Marketing vs Branding
• Functions of Capital Market

What is Capital Market?

A kind of financial market where the company or government securities are

generated and patronised with the intention of establishing long-term finance
to coincide the capital necessary is called Capital Market.
In this market, the buyers use funds for longer-term investment. The nature of
the capital market is risky markets. Therefore, it is not used for short-term
funds investment. Most of the investors obtain the capital markets to preserve
for education or retirement.
This article is a ready reckoner for all the students to learn the Difference
Between Money Market and Capital Market.

Features of Money Market

A few general money market features are:

• It is fund-term market funds.

• It’s maturity period up to one year.
• It trades with assets that can be transformed into cash easily.
• All the transactions take place through phone, email, text, etc.
• Broker not required for the transaction
• The components of a money market are the Commercial Banks,
Nonbanking financial companies and Central Bank, etc.

Features of Capital Market

Important features of the capital market are:

• Unites entrepreneurial borrowers and savers

• Deals with long-term investments.
• Agents are required.
• It is controlled by government rules and regulations.
• Deals in both commercial and non-commercial securities.
 • Foreign Investors.

5 Types of Money Markets

Money market instruments have different securities, which can be utilised for
short term borrowings. A few different types of market money are:

• Call Money- It portrays a short term loan with maturities term starting
from one day to fourteen days, and it can be repaid on demand.
• Treasury Bill- It is the oldest and traditional money market instrument
and is practised across the globe. The instrument is declared by the
Government and does not have to pay any interest. This is available at a
discounted rate at the time of issue.
• Ready Forward Contract (Repo)-The word repo is acquired from the
phrase “repurchase agreement”. It is an agreement that specifies the
sale and purchase of an asset. In India, this agreement is prepared
between different banks and sometimes between bank and RBI for short
term loans.
• Money Market Mutual Fund-This is the alternative name for liquid funds
and are the lowest risk debt funds.
• Interest Rate Swaps- This is the latest money market instruments in
India. Here, two parties sign an agreement, where one decides to pay a
fixed rate of interest, and the other pays a floating rate of interest.

Types of Capital Market

The Capital Market instrument involves both the auction market and dealer
market. It is classified into two sections: Primary Market and Secondary
Market.

• Primary Market: Here, fresh contracts are given to the people for the
subscription purpose.
• Secondary Market: The securities that have already been issued are
exchanged among investors.

Money Market Examples

Since they are extremely liquid in nature, the money market recovery period is
restricted to one year. A few examples of Money Market are:
 • Trade Credit
• Commercial Paper
• Certificate of Deposit

• Treasury Bills Explore:

What is Marketing Mix?

Capital Market Examples

The capital market circulates the capital in the economy among the user and
the suppliers of money.
The maturity period is more than one year or sometimes it is incurable (no
maturity).

• Stocks
• Bonds
• Debentures
• Euro issues