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; , ; (Some work hard, its because they are afraid of losing; some work hard, it is because they realise they lack; some work hard, its because there is no choice of turning back;) I thought it was quite MONEY AND CAPITAL MARKETS profound. What is your motivation for working hard?

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What are the MONEY and CAPITAL markets?

Financial markets are classified into the money market and the capital market. The MONEY MARKET is where short-term funds are raised through the buying and selling of short term debt securities such as commercial papers.

The CAPITAL MARKET is where long-term funds are raised through the bond market, which deals with long-term debt securities such as bonds, the stock market which deals with equity securities or stocks.

The capital and the money markets are two types of financial markets. The primary difference between the two is that if the organizations have to borrow or invest funds for a longer period of time then they go in the capital markets and if they want to borrow or invest funds for a short period of time then they go for the money markets.

Second, capital markets deal with stocks and bonds while money markets deal with certificates of deposits, bankers' acceptance, repurchase agreements and commercial paper.

Thirdly, there are more speculations in the capital market as compare to the money market because capital market offers high maturity on the credit instruments. Moreover, higher returns are paid on the securities traded in the capital market as compare to the money market because of the high risk in capital markets.

WHAT IS CAPITAL MARKET?

Basically the capital market is a type of financial market, it includes the stocks and bonds market as well. But in general the capital market is the market for securities where either companies or the government can raise long term funds.

One way that the companies or the government raise these long term funds is through issuing bonds, which is where a person buys the bond for a set price and allows the government or company to borrow their money for a certain time period but they are promised a higher return for allowing them to borrow the money, the higher return is paid through interest that accrues on the money that the government or company borrows.

But how the stock market works is that the companies decide to sell shares of Another way that the companies or their stock, which is basically ownership in government can raise money in the capital the company, to ordinary people and market is through the stock market, most other companies, as a way to raise of the time you don't see the government money. The people who buy the stock are as a part of the stock market, but it can usually given dividends each year, if the actually happen. company has agreed to pay out dividends, so that is another possible return on their investment.

The capital market actually consists of two markets. The first market is the primary market and it is where new issues are distributed to investors, and the secondary market where existing securities are traded. Both of these markets are regulated so that fraud does not occur and in the United States the U.S. Securities and Exchange Commission is in charge of regulating the capital market.

WHAT IS THE MONEY MARKET?

Basically the money market is the global financial market for short-term borrowing and lending and provides short term liquid funding for the global financial system. The average amount of time that companies borrow money in a money market is about thirteen months or lower.

Some of the more common types of things used in the money market are certificates of deposits, bankers' acceptance, repurchase agreements and commercial paper to name a few. Basically what the money market consists of is banks that borrow and lend to each other, but other types of finance companies are involved in the money market.

What usually happens is the finance companies fund themselves by issuing large amounts of asset backed commercial paper that is secured by the promise of eligible assets into an asset backed commercial paper conduit. Your most common examples of these are auto loans, mortgage loans, and credit card receivables.

WHAT IS THE DIFFERENCE?

Basically the difference between the capital markets and money markets is that: capital markets are for long term investments, companies are selling stocks and bonds in order to borrow money from their investors to improve their company or to purchase assets.

Whereas, money markets are more of a short term borrowing or lending market where banks borrow and lend between each other, as well as finance companies and everything that is borrowed is usually paid back within thirteen months.

Another difference between the two markets is what is being used to do the borrowing or lending. In the capital markets the most common thing used is stocks and bonds, whereas with the money markets the most common things used are commercial paper and certificates of deposits.

What are the primary and secondary markets?

Basically, it is in the capital market, called the stock market, where an investor can buy and sell stocks. This market consists of the primary market or secondary market, depending on whether the securities were sold by the company itself or by an existing shareholder(s).

Primary Market
In the primary market, new shares are issued and sold to the investing public for the first time. It is where capital is actually raised by the company selling stock directly to investors typically through an initial public offering.

For instance, if San Miguel Corporation decides to sell a new stock to raise equity funds, it will be a primary market transaction.
Since it is the first time the company has sold stock to the public, it is called an initial public offering (IPO).

The proceeds of the sale go to San Miguel Corporation, the issuing company.

Investors who have subscribed to the IPO have provided the company with the necessary funds to continue its operation and expansion, and become part owners of the company. An underwriter or investment banker assists the issuer of a new security in setting the offering price and in marketing the securities to the public.

The investment bankers serves as a middleman in the transfer of funds between the company in need of capital and the public, and facilitates the issuance of shares.

There is occasionally a secondary offering in the primary market. This means that the shares of stock being offered were previously issued but is being offered to the public for the first time by a large or controlling shareholder. As such, the selling stockholder gets the proceeds of the sale.

Secondary Market
The secondary market is where securities can be bought and sold after they have been issued to the public in the primary market.

Thus, if you decide to buy existing shares of San Miguel Corporation, you cannot buy them directly from the issuing company anymore since they have all been sold to the investing public during the initial public offering. So, how can you avail of San Miguel shares when the IPO has been completed?

Investors can only buy these shares from existing shareholders who are willing to sell their shares. When they do so, it is a secondary market transaction. The proceeds from this transaction do not go to the issuing corporation; instead they go to the investor who sold his shares.

The secondary market is where the original shareholders sell their shares to other investors. An investor can only make a profit when he can sell his shares at a price higher that the purchase price. This market gives a continuous reflection of the value of securities (prices) at some point in time according to the best available information.

Secondary markets include the stock exchange and the over-the-counter (OTC) market.

What is a stock market and stock exchange?

 There are differences in their definition but real concept of a stock exchange and stock market remains constant. Simply defined, a stock market is an organized activity involving the buying and/or selling of securities done within a stock exchange.

In a fundamental sense, a stock exchange brings buyers and sellers together. It is an organization whose function is to facilitate the purchase and sale of stocks and other securities. It is a market where investors can buy and sell securities after they have been offered in the primary market.

Remember that the stock exchange is not a capital raising mechanism. As part of the secondary market, it is only adjunct to the capital raising market or primary market. It is merely a place or means where existing shareholders can sell their shares to those who are ready to buy.

The stock exchange and the stock market facilitate the flow of savings into investments by providing a ready market for the resale of securities. The inflow of funds in the stock market is one efficient way of directing a needed resource (in this case, money) into a growing economy.

As such, the stock exchange plays a key role in economic development by providing a centralized environment that brings together the demanders and suppliers of funds to make secure and fast transactions.

What is the over-the-counter market?

Stocks of corporations not listed and therefore not traded in the stock exchange but registered and licensed by the Securities and Exchange Commission for sale to the public are only available in the so-called over-the-counter (OTC) market.

This market is not a specific organization but another way of trading securities. OTC transactions are carried out by direct inquiries and negotiations among the buyers and sellers through the use of mail, telephone, telegraph, Teletype, or other forms of communications.

What are the advantages of the stock market?

The stock market is a better market for the trading of securities as opposed to the OTC because of the following:
Most accessible market Ready market Liquidity of the market Operates in full public view

Most Accessible Market

Through the offices of member firms located everywhere, even in the provinces, stocks are available to millions of people.

Ready Market
With a simple phone call, an investor can buy and sell stock, virtually within minutes. Market transactions are done swiftly, conveniently and at a fair price.

Liquidity of the Market

Hundreds of different stocks are available to thousands of buyers and sellers and can readily be turned into cash due to the large number of market players. The OTC market is generally much thinner or less liquid which makes it more difficult to sell at a certain time in a failing market due to lack of buyers.

Operates in full public view

Transactions and price data are readily available through newspapers, radio, television and information networks. Unlike the stock exchange, the over-thecounter stock prices are not published daily in the newspapers, which makes it more difficult for an investor to keep track of his investment.

Who are the players in the stock market?

Investors are the ones who buy and sell securities in the hope of receiving dividend income and making a profit through capital appreciation. These buyers and sellers are not the only players in the stock market. Other persons or institutions ensure that the stock market is a readily accessible, efficient, orderly and transparent market.

Stockbroker
Anyone who wishes to buy shares of stocks or bonds must have a stockbroker. He acts as an agent or middleman between the investor and other buyers/sellers. As an intermediary, the stockbroker executes orders for clients, purchasing or selling the stocks on the stock exchange.

He is the only person or corporation authorized and licensed by the Securities and Exchange Commission to trade in securities. They are commonly known as members, member-brokers, or member-firms of the Philippine Stock Exchange.

Stock exchange
This is the organization that oversees the transactions of the buyers and sellers placed through the member-brokers. Its professional management ensures that the market is efficient, fair, transparent and orderly by enforcing its rules and regulations.

Transfer agent
When shares are purchased and transferred from the seller to the buyer, the transaction should be recorded in the stock books of every listed company which record the complete shareholdings of each stockholder of the company. But most companies have his record keeping done by a separate agency, called the transfer agent.

Thus, when a transaction has been done, the details are kept in a ledger or record book by the companys transfer agent. As such, the transfer agents maintains the ledgers for each issuer company showing the name and address of, and the number of shares held by each registered stockholder.

Another function of a transfer agent, which is either a commercial bank or trust company, is to cancel old certificates, issue new certificates and change the name of the certificates into the buyers name when the shares have been sold.

Clearing House
When a transaction has been made, the seller through his stockbroker has to deliver the stock certificate to the buyer who in turn orders his stockbroker to pay for the shares purchased.

This seems to be an easy process. But considering the thousands of transactions executed everyday and the nearly 200 stockbrokers involved, broker-to-broker payments and delivery of certificates would become complicated. To facilitate transactions and make the market more orderly, all payments by all stockbrokers are done to a centralized institution, called the clearinghouse.

Thus, all stockbrokers will make payments to and receive payments from the clearinghouse for purchases and sales they have made for their clients. At the same time, all stock certificates will be delivered to and obtained from this central institution.

Listed Company
A corporation that offers and lists its shares in the stock exchange is called a listed company or issuer. A listed company is also known as a publicly owned company in view of the fact that its shares were sold to the investing public.

These are the companies that raised their required funds through such issuance of securities to the public. The capital raised provides the company with the necessary funds to be invested in business facilities and equipment.

An issuing company becomes a listed company, whose shares are traded in the stock market, after it has met the strict listing requirements imposed by the stock exchange.