To maintain monetary equilibrium. It means to keep a balance between the demand for and supply of money for short term monetary transactions.To promote economic growth. Money market can do this by making funds available to various units in the economy such as agriculture, small scale industries, etc.To provide help to Trade and Industry. Money market provides adequate finance to trade and industry. Similarly it also provides facility of discounting bills of exchange for trade and industry.To help in implementing Monetary Policy. It provides a mechanism for an effective implementation of the monetary policy.To help in Capital Formation. Money market makes available investment avenues for short term period. It helps in generating savings and investments in the economy.Money market provides non-inflationary sources of finance to government. It is possible by issuing treasury bills in order to raise short loans. However this dose not leads to increases in the prices.
MONEY AND CAPITAL MARKETS
MONEY MARKET• Financial instruments with high liquidity and very short maturities are traded.• Used by participants as a means for borrowing and lending in the short term, from several days to just under a year.• Due to highly liquid nature of securities and their short term maturities, money market is treated as a safe place.• Hence, money market is a market where short term obligations such as treasury bills and banker’s acceptances are bought and sold.
Benefits of Money Market• Money markets exist to facilitate efficient transfer of short-term funds between holders and borrowers of cash assets.• For the lender/investor, it provides a good return on their funds.• For the borrower, it enables rapid and relatively inexpensive acquisition of cash to cover short-term liabilities.
Functions of Money Market• To maintain monetary equilibrium• To promote economic growth• To provide help to Trade and Industry• To help in implementing Monetary Policy• To help in Capital Formation• Money market provides non-inflationary sources of finance to government.
Money Market Instruments• Malaysian Government Treasury Bills (MTB)• Malaysian Government Securities (MGS)• Bankers Acceptances (BA)• Negotiable Instruments of Deposits (NID)• Repurchase agreements (Repo)• Cagamas Bond• Khazanah Bond
CAPITAL MARKET• A market in which individuals and institutions trade financial securities.• Markets that trade equity (stocks) and debt (bonds) instruments with maturities of more than one year (long term maturity)• Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds.
Types of Market– Primary market are markets where firms raise funds by issuing new securities. This process is called disintermediation where the funds flow directly from investors to issuers.– Secondary market is markets in which financial instruments already in existence are traded among lenders.
Benefits of Capital Market• Provide the lubricant between investors and those needing to raise capital.• Create price transparency and liquidity. They provide a safe platform for a wide range of investors to hedge and speculate.• Holding different shares or bonds allows an investor to spread investment risk.• The secondary market gives important pricing information that permits efficient use of limited capital.
Functions of Capital Market• To mobilize resources for investments.• To facilitate buying and selling of securities.• To facilitate the process of efficient price discovery.• To facilitate settlement of transactions in accordance with the predetermined time schedules.• To promote private enterprises by providing intermediary services to raise funds for corporate investment and expansion and in changing the
Capital Market Instruments• Equity – A market that exists between companies and financial institutions that is used to raise equity capital for the companies. Such as ordinary share, preferred share, common stock and fixed deposits.• Debt: Instruments that are issued by the issuers for borrowing monies from the investors with a defined tenure and mutually
MONEY Vs. CAPITAL Capital Market Money MarketRefers to stock market, A place for short term lendingwhich refers to trading in and borrowing, typically withinshares and bonds of a year. It deals in short termcompanies on recognized debt financing andstock exchanges. investments.Anybody can make Individual players cannot investinvestments through a in money market as the valuebroker. of investments is large.High risk and high return More secureTrading is through recognized Deals are transacted on phonestock exchanges. or through electronic systems