Capital Market, Money Market: Concept, Function
Money Market :
- The market where the short-term instruments such as treasury bills, certificate of deposits, money at call, interbank transactions, commercial paper, etc. are traded is known as the money market.
- The money market instruments are a close substitute for money as they are highly liquid and easily marketable.
- The main functions of the money market are to provide short-term loans to the government and the businessmen to meet their day-to-day requirements of the working capital, temporary funds to the speculators, and provide a better opportunity for the commercial banks to utilize their funds for the short period of time.
- The money market provides the opportunity for the banks and businessmen to utilize their extra funds which can be quickly converted into cash whenever necessary. It also allows banks to make up their unforeseen requirements for funds that they can get cheaply from the money market.
- The development of an efficient money market needs the growth of institutions, operating procedures that promote widening and deepening of the market, and allocation of short-term resources with the least transaction costs and a minimum of delays.
Capital Market
- The capital market plays an essential role in an economy that allows investor’s funds to gorge potential opportunities,
- i.e. saving funds are mobilized and channeled efficiently to users.
- Capital markets afford an efficient way of getting long-term funds by distributing shares and debentures or securities for corporate enterprises and government at the same time provide an investment opportunity for individuals and institutions.
- The capital market is a market where borrowing and lending of long-term funds take place so, in brief, it deals in both debt and equity.
1. Capital Market Instruments
The tools are the securities that are traded in the stock market. The tools can be categorized into three major groups of securities :
- Ordinary shares
- Preference shares
- Debt instruments
1. Types of Capital Market
a. Primary Market
A primary market is a market in which new issues of security, such as a bond and stock are sold to initial buyers by a corporation or government agency. The Securities Board of Nepal (SEBON) and the Nepal Stock Exchange (NEPSE) are BOTH involved in primary market activities in Nepal.
b. Secondary Market
This enhances the new issue market in many ways, it provides how investors can monitor the value of their shares and liquidate them when they wish to do so. It is a market where existing securities are traded on a regular and continuous basis. It is the market for existing securities. Aforementioned consists of exchanges and over-the-counter markets where securities are bought and traded after their issuance in the primary market.