“Risk comes from not knowing what you’re doing”

“Risk comes from not knowing what you’re doing”

Money and Capital Market

In economics, a Financial Market is a mechanism that allows people to buy and sell financial securities (e.g., shares and bonds) and commodities (e.g., precious metals or agricultural goods) at low transaction costs and at price that reflects the efficient market hypothesis.

“Financial Market is a market for the exchange of capital and credit including the money markets and capital markets.”

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Money Market

The money market is a market for short-term loans. The borrowing and lending in the money market is one year of less. On the other hand, the capital market in which funds are borrowed and lent for a period over year. The two markets also differ in terms of the instruments they deal in. The money market deals in highly marketable liquid instruments such as the promissory note, the bill of exchange and the Treasury bill etc. On the other hand, the capital market deals in common stocks, debentures and bonds.

Instruments of Money Market

• Bills of exchange

“Bills of Exchange are a document, which contains the order of creditor of seller for debtor or buyer to pay a certain sum of money to or to a certain person.”

• Promissory Note

“It is a negotiable credit instrument in which the debtor makes a promise for the payment of a certain amount of money to a creditor or to the bearer of the instrument, on demand or after the expiry of a certain period.”

• Treasury Bill

“The treasury bill is a document in which the government promises to pay a certain sum of money to a person or business concern. This bill is transferable and contains a specified space for the name of purchaser. If the name of purchaser is not written on the treasury bill then it is paid to the bearer. The treasury bills may have 3, 6 or 12 month’s maturity period.”