Core Importance Of Money Market

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10.3. Core Principle 3: Information is the basis For decisions we collect information before making decisions. The more important the decision, the more information we collect. The collection and processing of information is the basis of foundation of the financial system. Some transactions are arranged so that information is NOT needed. Stock exchanges are organized to eliminate the need for costly information gathering and thus facilitate the exchange of securities. One way or another, information is the key to the financial system. 10.4. Core Principle 4: Markets set prices and allocate resources Markets are the core of the economic system; the place, physical or virtual, Where buyers and sellers meet, Where firms go to issue stocks and…show more content…
Money market is one of the main segments of financial system of India. The main type of highly liquid marketable securities which refer to as money market instruments are treasury bills, government securities, commercial papers, certificates of deposit, call money, repurchase of assets, etc. The regulatory body of the money market is Reserve Bank of India. They control the money supply in the market by reducing the policy rates or by controlling the inflationary effects in the market. Importance of Money Market • It helps in the development of trade and industry • It also helps in the development of capital markets • It is one of the important source of finance to the government • It helps the commercial banks to run their operations effectively and efficiently • Central bank has the power to control the flow of money in the market. Treasury bills- these are the most preferred marketable security in the money market issued with period of three months, six months and one- year maturity period. Certificate of deposit- these are the time deposit. This mean it cannot be withdrawn before the time of its maturity. The amount of return on saving is more and is a secure mode of instrument of the money…show more content…
These are known as the unsecured loans. Everyone cannot issue the commercial papers; the companies with high credit rating can only issue this mode of money market instrument. Classification of Money Market 1. RBI 2. Public sector banks 3. Private banks 4. Development banks 1.11.2 Capital Market Capital market is a market where securities are bought and sold. The money market instruments are classifies as; bonds, equities mortgages, etc. The main objective of the capital market is to flow the small investment in the open market. Capital market offers both long term and shot term funds that can be traded in a market. The different types of instruments that are traded in the Capital market are: • Equity • Credit market • Insurance instrument • Foreign exchange instruments • Derivates Types of Capital market • Primary market- the primary market is a part of capital market which deals with issuing new securities. Government, public sector institutions and companies can obtains funds through the sale of new stock or bonds. The process of selling new issues to the clients or investors is known as underwriting. Primary instruments include stock, bonds, certificate of deposits and anything else which has its own
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