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• – And are used to match those who want capital to those who have it.
• Saving Function
• Liquidity Function
• Payment Function
• Risk Function
• Policy Function
• Capital Market
• Money Market
• Capital Market
• A capital market is a market for securities (debt or equity), where business
enterprises (companies) and governments can raise long-term funds. It is
defined as a market in which money is provided for periods longer than a
year
• The capital market includes stock market (equity securities) and the bond
market (debt).
• Money market
• The money market is a mechanism that deals with the lending and borrowing
of short term funds (less than one year).
• It deals with substitute of cash like trade bills, promissory notes &
government papers which can be converted into cash without any loss at low
transaction cost.
• Secondary market
Primary market
• This market is for new long term equity capital.- New Issue Market (NIM).
• The company receives the money and issues new security certificates to
the investors.
• Primary issues are used by companies for the purpose of setting up new
business or for expanding or modernizing the existing business.
• Borrowers in the new issue market may be raising capital for converting
private capital into public capital; this is known as "going public. “
• Secondary market
• Secondary market refers to a market where securities are traded after being
initially offered to the public in the primary market. In this, majority of the
trading is done in the secondary market and the trading is done through
stock exchanges.
• A commercial bill is one which arises out of a genuine trade transaction, i.e.
credit transaction. As soon as goods are sold on credit, the seller draws a bill
on the buyer for the amount due. The buyer accepts it immediately agreeing
to pay amount mentioned therein after a certain specified date. Thus, a bill of
exchange contains a written order from the creditor to the debtor, to pay a
certain sum, to a certain person, after a creation period. A bill of exchange is
a ‘self-liquidating’ paper and negotiable/; it is drawn always for a short period
ranging between 3 months and 6 months.
• Acceptance Market
• A treasury bills nothing but promissory note issued by the Government under
discount for a specified period stated therein. The Government promises to
pay the specified amount mentioned therein to the beater of the instrument
on the due date. The period does not exceed a period of one year. It is purely
a finance bill since it does not arise out of any trade transaction. It does not
require any ‘grading’ or’ endorsement’ or ‘acceptance’ since it is clams
against the Government. Treasury bill are issued only by the RBI on behalf of
the Government. Treasury bills are issued for meeting temporary
Government deficits. The Treasury bill rate of discount is fixed by the RBI
from time-to-time. It is the lowest one in the entire structure of interest rates
in the country because of short-term maturity and degree of liquidity and
security.