CHAPTER 3: FINANCIAL MARKETS
Money MarketDeals in short-term funds (less than one year).CharacteristicsHigh liquidityLow riskShort maturityLow returnInstrumentsTreasury BillsCommercial PaperCertificate of DepositCall MoneyCapital MarketDeals in long-term securities (more than one year).CharacteristicsLong-term financingHigher riskHigher returnPromotes capital formationInstrumentsEquity SharesPreference SharesDebenturesCorporate BondsMoney Market vs Capital MarketMoney MarketCapital MarketShort-termLong-termLow riskHigher riskHigh liquidityComparatively lower liquidityTreasury BillsShares and BondsVery Frequently Asked (5 Marks)Primary MarketNew securities are issued to investors for the first time.Examples:IPOFPORights IssueFunctionsMobilizes savingsRaises capitalEncourages investmentSecondary MarketTrading of already-issued securities among investors.Examples:Stock ExchangeFunctionsLiquidityPrice discoveryEasy buying and sellingPrimary Market vs Secondary MarketPrimarySecondaryNew securitiesExisting securitiesCompany receives moneyInvestors receive moneyInitial issueResaleVery Important QuestionStock ExchangeA stock exchange is an organized marketplace where securities are bought and sold.FunctionsProvides liquidityDetermines market priceProtects investorsMobilizes savingsFacilitates capital formationSecurities Traded in Capital MarketEquity SharesPreference SharesDebenturesCorporate BondsGove
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