QTM indux number, money & capital market

2. Quantity Theory of Money , Explain the
index number.
What is money market, what is capital
market.
By: Zara Ahsan
THE SUPERIOR COLLEGE LAHORE
ASSOCIATE DEGREE IN ACCOUNTING AND
FINANCE

3. Quantity theory of money
O In monetary economics, the quantity
theory of money (QTM) states that the
general price level of goods and services
is directly proportional to the amount of
money in circulation, or money supply.
• The theory was challenged by Keynesian
economics, but updated and refreshed by
the monetarist school of economics.

4. O While mainstream economists agree that
the quantity theory holds true in the long
run Critics of the theory argue that the
direct relationship between money supply
and price level does not hold.

5. Explain the index number
O An index number is an economic data
figure reflecting price or quantity
compared with a standard or base value.
The base usually equals 100 and
the index number is usually expressed
as 100 times the ratio to the base value.

6. Money market and capital
market

7. Financial Market
It is the market for sale and purchase of
stocks (shares), bonds, bills of exchange,
commodities, foreign currency etc which
works as liquid assets
Financial market is of two types:
FINANCIAL
MARKETS
CAPITAL
MARKET
MONEY
MARKET

8. Money Market
O Money market is a mechanism that deals
with the lending of short term funds (less
than one year)
O A segment of the financial market in which
financial instrument with high liquidity.

9. Feature of money market
O Components of Money Market
O Diverse Market
O Dealers of Money Market
O Short-term Loans
O Different from Capital Market
O Association with Big Cities
O Change with Place and Time

10. Characteristics of A Developed
Money Market
O Existence of Central Bank
O Highly organized commercial Banking
System
O Existence of sub-markets
O Combined structure of money market
O Availability of proper credit instruments
O Capability and Elasticity of funds

11. O International attraction
O Uniformity of interest rates
O Stability of prices and Highly developed
Industrial system

12. Importance of Money Market
O Financing Industry
O Financing trade
O Self sufficiency of banks
O Effective implementation of monetary
policy
O Encourages economic growth
O Help to government
O Proper allocation of resources

13. Instrument of Money Market
O Treasury bills
O Commercial bills
O Money at call
O Promissory notes

15. CAPITAL MARKET
O The market where investment instruments
like bonds and equities are traded is
known as the capital market.
O The primal role of this market is to make
investment from investors who have
surplus funds to the ones who are running
a deficit

16. O The capital market offers both long term
and overnight funds.
O The different types of financial instruments
that are traded in the capital markets are:
O equity instruments
O insurance instruments,
O foreign exchange instruments,
O hybrid (mixcure) instruments

17. Nature of capital market
O The nature of capital market is brought out
by the following facts:
O It Has Two Segments
O It Deals In Long-Term Securities
O It Performs Trade-off Function
O It Creates Dispersion In Business
Ownership
O It Helps In Capital Formation
O It Helps In Creating Liquidity

18. Type of capital market
O Primary Market
O Secondary Market

19. Primary Market
O It is that market in which shares, debentures
and other securities are sold for the first time
for collecting long-term capital.
O This market is concerned with new issues.
O Therefore, the primary market is the flow of
funds is from savers to borrowers (industries),
hence, it helps directly in the capital formation
of the country.
O The money collected from this market is
generally used by the companies to
modernize the plant, machinery and buildings,
for extending business, and for setting up new
business unit.

20. Secondary Market
O The secondary market is that market in which
the buying and selling of the previously issued
securities is done.
O The transactions of the secondary market are
generally done through the medium of stock
exchange.
O The chief purpose of the secondary market is
to create liquidity in securities.
O If an individual has bought some security and
he now wants to sell it, he can do so through
the medium of stock exchange to sell or
purchase through the medium of stock
exchange requires.