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August 05, 2014

Banking Awareness for IBPS PO IV : Introduction to Money Market and Capital Market


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Money Market : A money Market may be defined as a financial market or centre in which people borrow and lend short-term funds. Alternatively, money market is also defined as the mechanism through which short-term funds are loaned and borrowed. The dealings in money market take place through short-term credit instruments, e.g., trade bills, promissory notes, hundis and government securities. Traders, brokers, speculators, manufacturers, business houses, governments as well as commercial banks, discount houses, and the Reserve Bank of India deal in the money market as borrowers and lenders. You can read the Characteristics of Indian Money Market from here.

Capital Market : A capital market is defined as a financial market in which people deal in long-term credits and loans. Insurance companies, investment banks, finance companies, investment trusts, stock exchange brokers and land mortgage banks deal in the capital market. The transactions in a capital market take place through long-term instruments and securities like shares and stocks, debentures, government bonds, etc. Which are issued by business houses and government. You can read the Characteristics of Indian Capital market from here.

Money and capital markets are not water-tight compartments. Funds often move in and out of one market and thereby increase or reduce the supply of funds in the other market. Short-term loans and credits are sometimes renewed from time to time. This enables borrowers to use short-term funds for long term purposes.

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