Business Environment -3

MBA
Galgotias University

Capital Market
It is market for funds with tenure
greater than one year.
This consist of equity market and
debt market.
There are organized capital market
and unorganized capital market.
Financial market consist of capital
market and money market.
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Money Market
Money market is market for loans or
financial assets with a tenure of less
than a year.
Money market instruments are call
money, notice money, term money,
treasury bills, commercial papers,
certificate of deposits, repo market,
commercial and trade bill, money
market mutual funds etc.
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Call money
It is basically interbank market for
the very short duration where the
lender can get back his money by
giving a call to the borrower.
Minimum duration is overnight
If the duration is 14 days it is called
notice money, if it is 15 days or more
it is called term money.
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Treasury bills
It is an instrument used by the
government to borrow money to meet
any temporary shortfall in the revenue.
There are issued for 91 days, 182 days
or 364 days with the minimum amount
of face value is 1,00,000 rupee.
They are sold at the discounted rate in
the market.

Difference between capital

market and money market-1
Duration of fund is less than one year
for money market where as for capital
market it is greater than one year.
Money market funds are provided for
current business need, for working
capital or short term needs of the
government whereas capital market
funds are used for fixed capital
requirement or the long term needs of
the government.
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Difference between capital

market and money market-2
Instruments used in capital market are
shares, debentures, bonds etc., in the
money market the instruments used are
treasury bill, certificate of deposit,
commercial papers, bill of exchange etc.
Value of the instruments are very high
in the money market than in the capital
market.
Generally there are no secondary
market for money market instruments.
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Difference between capital

market and money market-3
In the money market, transactions are done
mostly over phones or other modes of
communication, a formal place is
unnecessary.
In capital market authorized dealers do the
transactions.
Development banks, insurance companies
are the dominant players in the capital
market. RBI, commercial banks, discount
houses, acceptance houses are the major
players in the money market.
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Primary and secondary

market
Primary market is the market for new
issues of shares, bonds and debentures.
Secondary market is the market where
the existing or already issued and
outstanding shares, bonds and
debentures are traded.
Debentures are usually secured and its
holders can claim companys asset in
case the company got liquidated.
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Unorganized capital market

It consists of moneylender and indigenous
bankers.
The rate of interest charged is extremely
high.
Most of the time the money is used for
consumption purpose.
Lack of uniformity in lending practice exists.
Usually people who do not get money from
organized market approach this market.
It is outside the effective government control.
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Role of capital market in

India
Mobilization and productive utilization of
savings.
Facilitate capital formation.
Rational allocation of scarce resources.
Avenue for investors.
Enhances the technological upgradation.
Increases productivity and economic
welfare.
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Gilt-edged market
It is a market for securities issued by
the government or semi-government
bodies.
It is considered to be 100% secured
without any risk.
Securities issued by the central and
state government, city corporations,
port trusts, state electricity board,
public sector undertakings are part of it.
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Deficiencies in the capital

market
Lack of diversity of financial instruments.
Lack of proper control over brokers and
sub-brokers.
Prevalence of insider trading and front
running.
High transaction costs.
Manipulation of securities prices.
Passive role of public financial institutions
in checking malpractices.
Lack of control over fair disclosure of
financial information.
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