Introduction

Composition

Functions

Saving Function Liquidity Function Payment Function Risk Function Policy Function

Defined

as the market in which financial assets are created or transferred.

These

assets represent a claim to the payment of a sum of money sometime in the future and/or periodic payment in the form of interest or dividend.

Classification

Money market

(Short term instrument)

Capital markets

(Long term instrument)

The

two:

most important distinction between the

The difference in the period of maturity.

Main

Function

To channelize savings into short term productive

investments like working capital .

Instruments

in Money Market

Call money market Treasury bills market Markets for commercial paper Certificate of deposits Bills of Exchange Money market mutual funds Promissory Note

Part

of the national money market

Day-to
Short

day surplus funds mainly of banks are traded

term in nature of these loans vary from 1 to 15 days

Maturity Lent Lent

for 1 day: Call money

for more than 1 day but less than 15 days: Notice money
Convenient Highly

interest rate

liquid loan repayable on demand

Unsecured Issued

Promissory note.

by well known companies with strong and high credit rating.

Sold

directly by the issuers to investors or through agents like merchant banks and security houses.
Flexible Low

Maturity

interest rates with compared to banks. a degree of financial stability to the system.

Imparts

Referred

as note payable in accounting

It

is a contract detailing the terms of a promise by one party (the maker) to pay a sum of money to the other (the payee).
The

obligation may arise from the repayment of a loan or from another form of debt.
For

example, in the sale of a business, the purchase price might be a combination of an immediate cash payment and one or more promissory notes for the balance.

Defined

as short term deposit by way of usance promissory notes.

Greater

flexibility to investors in the deployment of surplus funds.

Permitted
Maturity

by the RBI to banks

of not less than 3 months and upto 1 year. in nature

Transferable Free

negotiability and limited flexibility

Invest

primarily in money market instruments of very high quality.

RBI

and public financial institution can set it either directly or through its existing subsidiaries.
MMMF Open Ended Close Ended

Provided

resources needed by medium and large scale industries.

Purpose

for these resources

Expansion Capacity Expansion Investments Mergers and Acquisitions

Deals

funds

in long term instruments and sources of

Main

Activity

Functioning as an institutional mechanism to

channelize funds from those who save to those who needed for productive purpose.
Provides opportunities to various class of

individuals and entities.

Primary Markets
When companies need financial resources for its expansion, they borrow money from investors through issue of securities. Securities issued a) Preference Shares b) Equity Shares c) Debentures Equity shares is issued by the under writers and merchant bankers on behalf of the company. People who apply for these securities are: a) High networth individual b) Retail investors c) Employees d) Financial Institutions e) Mutual Fund Houses f) Banks
One time activity by the company.

Secondary Markets
The place where such securities are traded by these investors is known as the secondary market. Securities like Preference Shares and Debentures cannot be traded in the secondary market. Equity shares are tradable through a private broker or a brokerage house. Securities that are traded are traded by the retail investors.

Helps in mobilising the funds for the investors in the short run.