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Author: Sanjir Islam Dewan
Published on: 10/Jan/2022


An Overview of the Money and Capital Markets

The Money market and The Capital markets are two major components of the global financial system.

  • The short-term debt market is known as the money market. It's a continuous flow of money between governments, corporations, banks, and financial organizations, with borrowing and lending terms ranging from overnight to a year.

  • Stock and bond trading are both parts of the capital market. Financial institutions, professional brokers, and ordinary investors all buy these long-term investments.


Market for Money

Individuals, banks, other businesses, and governments can use the money market to store cash for a short period of time, usually a year or less. It was created for It exists so that businesses and governments in need of cash can receive it swiftly and at a reasonable cost, and so that enterprises with excess cash can put it to good use.

Although the profits are modest, the dangers are low. Deposits, collateral loans, acceptances, and bills of exchange are all examples of money market products. The Federal Reserve, commercial banks, and acceptance houses are all involved in the money markets.

Short-term debt is typically issued by a corporation or government to fund ordinary operational expenses or provide working capital, rather than for capital improvements or large-scale projects.

About Liquidity

The money market is critical in ensuring that banks, other businesses, and governments maintain the necessary level of liquidity on a daily basis, without running out of cash and having to take out a more expensive loan, or hoarding cash that isn't producing interest.

Individual investors can put their money in the money markets to keep it safe and accessible. There are other options, including mutual funds that specialize in state money market funds & municipal funds. Many government funds are exempt from taxation. Most banks also allow you to open a money-market fund.

The Capital Market

The capital market is where stocks and bonds are traded. Its movements from hour to hour are constantly monitored and analyzed for clues on the health of the economy at large, the position of each industry within it, and the short-term consensus.

The primary goal of corporations and institutions that participate in the capital markets is to raise funds for long-term goals, which usually entail expanding their businesses and increasing their revenues. They do this by selling business bonds and issuing stock shares.

Primary and secondary

The main market and a secondary market are roughly divided into the capital market. When a corporation issues new stock or bonds, it places them on the primary market for direct sale to investors or institutions. The secondary market is where those buyers sell their shares or bonds if and when they chose to do so. Although firms have an interest in the price of their stock shares improving over time, the original issuer of such stocks or bonds does not benefit immediately from their resale.

The capital market is characterized by several factors. The money market and the capital market together make up a substantial part of what is referred to as the financial market

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