Capital Market and Money Market (Part – 1) : Classification of Financial Market

Dr. Manishika Jain- Join online Paper 1 intensive course. Includes tests and expected questions.

Topics to be Covered Are

Part - 1

  • What is Financial Market
  • Classification of Financial Market (Capital Market & Money Market)
  • Components of Capital Market
    • Primary Market
    • Secondary Market
  • Difference between Primary and Secondary market

Part - 2

  • Money Market
  • Components of Money market
    • Treasury Bills (T- Bills)
    • Certificate of Deposits (CDs)
    • Commercial Papers (CPs)
    • Repurchase Agreements (Repo)
    • Call/Notice Money/Term Money
    • Banker՚s Acceptance (BA)
Capital Market
Money Market

Financial Market

Financial Market refers to a marketplace, where creation and trading of financial assets, such as shares, debentures, bonds, derivatives, currencies, etc. take place. It plays a crucial role in allocating limited resources, in the country՚s economy. It acts as an intermediary between the savers and investors by mobilizing funds between them.

Classification of Financial Market

Financial Market can be classified into four different forms.

By Maturity of Claim

  • Capital Market: It trades medium- and long-term financial assets.
  • Money Market: It deals with monetary assets and short-term funds such as a certificate of deposits, treasury bills, and commercial paper, etc. which mature within twelve months.

By Nature of Claim

  • Debt Market: It is a market where fixed bonds and debentures or bonds are exchanged between investors.
  • Equity Market: It is a place for investors to deal with equity.

By Timing of Delivery

  • Cash Market: It is a market place where trade is completed in real-time.
  • Futures Market: Here, the delivery or compensation of products are taken in the future specified date.

By Organizational Structure

  • Exchange-Traded Market: It has a centralized system with a patterned procedure.
  • Over-the-Counter Market: It has a decentralized organization with customized procedures

Components of Capital and Money Market

Components of Capital and Money Market
Components of Capital and Money Market

Capital Market

  • Capital Market: Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions
  • Capital markets help channelize surplus funds from savers to institutions which then invest them into productive use. Generally, this market trades mostly in long-term securities.

Capital market consists of:

  • Primary markets: Primary markets deal with trade of new issues of stocks and other securities.
  • Secondary markets: Secondary market deals with the exchange of existing or previously-issued securities.

Primary Market

  • Primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities, government as well as corporates, to raise funds to meet their requirements and/or discharging some obligations. The securities may take a variety of forms such as equity, debt etc. and may be at face value or at a discount/premium.
  • Primary market is a market in which public issue of securities is made through a prospectus in a retail market and there is no physical location.

Instruments of Primary Market:

  • Initial Public Offering (IPO)
  • Private Placement
  • Preferential Allotment

Secondary Market

It is market for trading and settlement of securities that have already been issued. It is a market where securities are traded after initially offered to the public in the primary market and/or listed on the stock exchange.

Instruments in the Secondary Market:

  • Fixed income instruments: Debentures, bonds, and preference shares
  • Variable income instruments: Equity and derivatives
  • Hybrid instruments: Convertible debentures

Difference between Primary Market and Secondary Market

Difference between Primary Market and Secondary Market
Difference between Primary Market and Secondary Market
Difference between Primary Market and Secondary Market
Difference between Primary Market and Secondary Market
Difference between Primary Market and Secondary Market
Difference between Primary Market and Secondary Market

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