The document discusses financial markets and differentiates between capital markets and money markets. Capital markets provide long-term funding through instruments like stocks and bonds, while money markets provide short-term funding through instruments like bills and commercial paper. The capital market can be further divided into the primary market, where new securities are issued, and the secondary market, where existing securities are traded. Key differences between the primary and secondary markets include the level of company involvement and whether transactions are direct sales or between investors.

2. Introduction
In economics, typically, the term market means the aggregate of
possible buyers and sellers of a certain good or service and the
transactions between them. The term "market" is sometimes used
for what are more strictly exchanges, organizations that facilitate
the trade in financial securities. Financial market is the market for
sale and purchase of stocks (shares), bonds, bills
of exchange, commodities, foreign currency etc. which works as
liquid assets.

3. Financial market is of two types-
Capital Market
Money Market
Financial
Market

4. Capital market
Capital markets are those that provide businesses, firms,
governments, and other organizations with securities for long-
term financial growth

5. Money market
Money markets are markets that provide short-term funding for
banks and other financial organizations. The financial instruments
used in money markets may include deposits and commercial
paper for financial agreements, such as car loans and mortgages

6. Capital market vs. Money market:
Features Capital market Money market
Definition Capital market is a component of
financial markets where long-term
borrowing takes place.
Money market is a component of the
financial markets where short-term
borrowing takes place.
Maturity Period The capital market deals in the lending
and borrowing of long-term finance
(i.e., for more than one year).
The money market deals in the lending
and borrowing of short-term finance
(i.e., for one year or less).
Credit Instruments The main instruments used in the
capital market are stocks, shares,
debentures, bonds, securities of the
government.
The main credit instruments of the
money market are call money,
collateral loans, acceptances, bills of
exchange.

7. Continued…
Features Capital market Money market
Nature of Credit
Instruments
The credit instruments dealt with in
the capital market are more
heterogeneous than those in money
market.
The credit instruments dealt with in the
money market are less heterogeneous
than those in money market.
Institutions Important institutions of the capital
market are stock exchanges,
commercial banks and nonbank
institutions, such as insurance
companies, mortgage banks, building
societies, etc.
Important institutions operating in the'
money market are central banks,
commercial banks, acceptance houses,
nonbank financial institutions, bill
brokers, etc.

8. Continued…
Features Capital market Money market
Purpose of Loan The capital market meets the long-term
credit needs of the industrialists and
provides fixed capital to buy land,
machinery, etc.
The money market, on the other hand,
meets the short-term credit needs of
business; it provides working capital to
the industrialists.
Rate of interest Capital market’s interest and dividend
rate depends on demand and supply of
securities and stock market’s conditions.
Rate of interest in money market is
controlled by central bank of any
country.
Risk The risk is much greater in capital
market.
The degree of risk is small in the
money market.

9. Continued…
Features Capital market Money market
Basic Role The basic role of capital market is that
of putting capital to work, preferably
to long-term, secure and productive
employment.
The basic role of money market is
that of liquidity adjustment.
Relation with
Central Bank
The capital market feels central bank's
influence, but mainly indirectly and
through the money market
The money market is closely and
directly linked with central bank of
the country.
Market Regulation In the capital market, the institutions
are not much regulated.
In the money market, commercial
banks are closely regulated.

10. A key division within the capital markets
is-

11. Primary Market
The Primary market refers to the market where new securities are
issued for the purpose of obtaining capital. In this market that
firms sell (float) new stocks and bonds to the public for the first
time

12. Capital or equity can be raised in primary market
by any of the following four ways-
 Public Issue
 Rights Issue
 Private Placement
 Preferential Allotment

13. Secondary Market
The secondary market refers to the market where securities that
have already been issued are traded. Once a security has been
purchased for the first time by an investor on the primary market,
the same security can be sold to another investor in the secondary
market

14. The secondary market can be further broken
down into two specialized categories-
 Auction market
 Dealer market

15. Primary Market vs. Secondary Market
 Primary and Secondary markets refer to markets which assist
corporations obtain capital funding
 The Primary market refers to the market where new securities
are issued by the company that wishes to obtain capital and is
sold directly to the investor, whereas, the secondary market
refers to the market where securities that have already been
issued are traded

16. Continued…
 The main difference is that, in the primary market, the
company is directly involved in the transaction, whereas in the
secondary market, the company has no involvement since the
transactions occur between investors

17. Differences of primary and secondary in a nutshell-
Features Primary market Secondary market
Definition The Primary market refers to the market
where new securities are issued for the
purpose of obtaining capital.
The secondary market refers to the
market where securities that have
already been issued are traded.
Involvement of
corporation
In the primary market, the corporation
is directly involved in the transaction,
Does not directly involve corporation
Type of selling Direct sale to the investors. Sale between two independent parties;
investors and/or financial institution
Offering type May be offered publicly or privately. Sold through dealer or auction markets.

18. Endnote…
Without financial markets, borrowers would have difficulty finding
lenders themselves.
Today most economies around the world are judged by the
performance of their financial markets. The financial markets serve a
vital purpose in the growth and development of a company that
wants to expand.