Financial Markets – Money Market and Capital Market

In our Knowledge sessions, we have covered till now these four topics that are required to be studied for banking interview and banking awareness section of the IBPS CWE exams.

  1. Commercial Banking – The basics
  2. RBI & its role in the economy
  3. CRR, SLR, Repo rate, Bank rate, Reverse repo rate
  4. Bank Deposits & Accounts

We will today cover Financial Markets in India.

Financial markets provide channels for allocation of savings to investment. Efficient transfer of resources from those having idle resources to others who have a pressing need for them is achieved through financial markets.

The financial markets have two major components:

  • Money market
  • Capital market.

Let’s discuss Money market in detail.

Money Market – It is a market for short-term funds with maturity ranging from overnight to one year and includes financial instruments that are deemed to be close substitutes of money.

Money Market transactions are done over the counter i.e. done directly between two parties.

The money market performs three broad functions.

  • It provides an equilibrating mechanism for demand and supply of short-term funds.
  • It enables borrowers and lenders of short term funds to fulfil their borrowing and investment requirements at an efficient market clearing price.
  • It provides an avenue for central bank intervention in influencing both quantum and cost of liquidity in the financial system, thereby transmitting monetary policy impulses to the real economy.

Money Market instruments & participants:

money

Money Market

Now let’s see what capital market is.

Capital Market – The Capital Market comprises the complex of institutions and mechanisms through which intermediate term funds and long-term funds are pooled and made available to business, government and individuals.

Capital

Capital Market

Capital Markets will be discussed in detail in a different post. If you have any query with respect to any topic covered so far, feel free to contact us.

 

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