Question

Does Money and Capital market play any role in the economic development of the country? Write salient features of both the markets.

breifly explain 1500 words

Answer 1

Money market is a market for short term fund ,generally ranging from overnight to a year.It helps in meeting the short term and very short term requirements of banks, financial institution,firms, companies and also to the government.

Whereas Capital market deals with the part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments.

Role in Economic Development of Country:

The Financial system of the country comprises of Money market, Capital market and Forex market.

The Flow of fund in these market is multi-directional depending upon liquidity, risk profile , yield pattern,interest rate differentials, arbitrage opportunities , regulatory restrictions etc.

The capital market has significant role in mobilising saving and contribute into productive investments for the development of commerce and industry. The capital market helps in capital formation and economic development of the country.

A money market is a mechanical device through which short term funds are loaned and borrowed through which a large part of the financial transactions of a particular country or world are degraded.

Main Features of Money market

1.Market for Short term

2.No fixed geographical location.

3. Major Institutions involved in money market are R.B.I., Commercial Banks, LIC, GIC, etc.

4. Common Instruments of money market are Call money, Treasury Bill, CP, CD, Commercial bill, etc.

Main Features of Capital Market

1.Connects savers & Entrepreneur borrowers

2.Deals in medium and long term investments

3.Presence of Intermediaries

4.Determinant of rate of Capital formation

5. Capital markets are governed by govt. rules and regulations

6.Deals in both marketable and non-marketable securities: Marketable securities being Equities.bonds and so on, Whereas non marketable securities are which cannot be transferred.

7.Provides Liquidity.

8. Variety of Investors: In comprise both individuals like gen. public and institutional investors like mutual funds, LIC and so on.