Financial markets are broadly classified into two segments: Money Market and Capital Market. Here’s a detailed overview of these segments:
- Money Market:
The money market is a segment of the financial market that deals with short-term borrowing and lending. It includes financial instruments that have a maturity period of up to one year. The money market is regulated by the central bank of the country.
The following financial instruments are traded in the money market:
- Treasury Bills: Treasury bills are short-term debt securities issued by the government to raise funds. They have a maturity period of less than one year.
- Certificates of Deposit: Certificates of Deposit are issued by banks to raise short-term funds. They have a maturity period of up to one year.
- Commercial Papers: Commercial papers are unsecured debt instruments issued by companies to raise short-term funds. They have a maturity period of up to one year.
- Repurchase Agreements: Repurchase agreements are short-term borrowing and lending transactions between banks and the central bank.
- Capital Market:
The capital market is a segment of the financial market that deals with long-term borrowing and lending. It includes financial instruments that have a maturity period of more than one year. The capital market is regulated by the Securities and Exchange Board of India (SEBI).
The following financial instruments are traded in the capital market:
- Equity Shares: Equity shares are issued by companies to raise long-term funds. They represent ownership in the company and give the shareholder voting rights.
- Preference Shares: Preference shares are issued by companies to raise long-term funds. They represent ownership in the company and give the shareholder preferential treatment over equity shareholders.
- Debentures: Debentures are long-term debt securities issued by companies to raise funds. They have a maturity period of more than one year.
- Bonds: Bonds are long-term debt securities issued by governments and corporations to raise funds. They have a maturity period of more than one year.
- Mutual Funds: Mutual funds are investment vehicles that pool money from investors to invest in stocks, bonds, and other securities.
- Derivatives: Derivatives are financial instruments that derive their value from an underlying asset such as stocks, bonds, or commodities.
Conclusion:
In conclusion, financial markets are broadly classified into two segments: Money Market and Capital Market. The money market deals with short-term borrowing and lending, while the capital market deals with long-term borrowing and lending. The financial instruments traded in these markets include treasury bills, certificates of deposit, commercial papers, equity shares, preference shares, debentures, bonds, mutual funds, and derivatives. The development of financial markets has played a crucial role in facilitating trade, mobilizing savings, and promoting economic growth and development.