6.differentiate b/n mony markets and capital markets and given commendable examples for each?
Money Market:
1. Definition: Money market refers to a component of the financial market where short-term borrowing and lending of funds take place. It deals with instruments with a maturity period of less than one year.
2. Purpose: Money market instruments are used by individuals, businesses, and government entities to manage their short-term liquidity needs, invest surplus funds, and obtain short-term financing.
3. Examples:
a) Treasury Bills: Short-term government debt securities issued by the government to finance its expenditure. They have a maturity of less than one year.
b) Commercial Paper: Unsecured promissory notes issued by corporations with a high credit rating to raise short-term funds.
c) Banker's Acceptance: Promissory notes issued by a bank on behalf of a customer, guaranteeing payment on a specified future date.
d) Certificate of Deposit: Time deposit offered by banks with a fixed term, usually ranging from a few months to a year.
Capital Market:
1. Definition: Capital market refers to a segment of the financial market where long-term financing and investments take place. It deals with instruments with a maturity period of more than one year.
2. Purpose: Capital market instruments are used for long-term investment and financing purposes. They provide a platform for raising capital for businesses and investment opportunities for individuals.
3. Examples:
a) Stocks: Securities representing ownership in a corporation. Stock markets allow investors to buy and sell shares, enabling companies to raise funds.
b) Bonds: Debt securities issued by entities, including governments and corporations, to finance projects or operations. Bonds have fixed interest payments and a specified maturity date.
c) Mortgage-backed Securities: Pool of mortgages packaged into a security and sold to investors. They represent an ownership interest in the underlying mortgage loans.
d) Mutual Funds: Investment vehicles that pool money from multiple investors to invest in a diversified portfolio of securities. Investors buy shares in the mutual fund, representing their ownership.
It is important to note that while money market deals with short-term borrowing and lending, capital market focuses on long-term financing and investments.