Table of Contents
Financial Market:
It refers to a system consisting of financial institutions (Banks, NBFCs), instruments (shares, bonds), organisation (stock exchange), and regulatory bodies (RBI, SEBI) which facilitate financial transactions.
Objective – capital flow and savings of household are mobilised for benefit of the market.
Financial Market is categorised into:
- Money Market – short term financial market of an economy.
- Capital Market – long term financial market of an economy.
| Money Market | Capital Market |
| Deals in short-term financial transactions. (up to 1 year). | Deals in medium (1 to 5 years) and long term (>5 years) financial transactions. |
| A source of working capital finance of firms. | A source of financing capital assets. |
| Deals only in bonds (commercial bill, commercial paper etc.) | Deals in bonds as well as equity. |
| General public participation is limited. | Public participation is significant. |
| Organised and unorganised sector. | Mainly confined to organised sector. |
| RBI is the prime regulator. | SEBI is the prime regulator. |
Features of Money Market:
- Monetary assets with maturity period of less than 1 year.
- Financial market of unsecured but lower risk and highly liquid short-term instruments.
- Helps raising funds for meeting temporary cash shortages and obligations.
Features of Capital Market:
- Link between savers and investment opportunities.
- Deals in long-term investment (not less than 1 year).
- Uses intermediaries: brokers, depositories etc.
- Determinant of capital formation.
- It works freely but under the guidance of the govt.
- It facilitates economic growth.
