What are the differences between Money Market and Capital Market? In financial markets transactions are combined with the capital. The market is an abstract concept here. This means, in principle, the process of sale and purchase of capital for expense – remuneration, which is a percentage. Anyone can be a participant of the financial market: the government, the company, a bank, or an individual. The condition for admission to the market is either adequate capital, which can be rented, or security – guarantee, on which you can take the capital, use it and pay percent on this account. Common are various types of divisions and definitions of financial markets. In this position, without going into theoretical disputes that are not in place, will be performed a two-step breakdown of the financial markets. Division presented below seems to be optimal in the sense of taking into account the different perspectives of the concept of “financial market”.
How financial market is divided?
Financial market is confronting entities administering temporary surplus of capital and those affected by temporary shortage of capital. Depending on the characteristics of capital, which is traded on the financial market, a financial market can be (in the broader sense) divided into two main segments:
Money market – in the broader sense – is part of the financial market, in which capital is traded with the repayment deadline of 1 year.
Capital market – in the broader sense – is part of the financial market, in which capital is traded with the date of return exceeding one year.
Money Market and Capital Market – key differences
Key segments of the money market is a market of short-term securities, the market for interbank deposits and short-term loans. Key segments of the capital market is a market of securities of medium-and long-term and market of medium and long term loans. Financial market embodies the movement of any financial flows.
Stage one is a financial market in the broader sense (all financial transactions): money market, capital market, securities market.
The second stage is the securities market as part of the financial market, which is narrower understanding of the financial market. (Generally – all financial transactions using securities).
Both the financial market and its part, which is the stock market, are divided into markets: financial and capital. Each transaction, which is a subject to any financial instrument (cash loan, handing a bill of exchange, purchase of security, etc.) creates a financial market. Any such transaction is on terms that are influenced by other financial transactions, while at certain extent, it shapes the conditions for future financial transactions. The financial market is a totality of financial transactions. Part of the financial market is the market of securities. It is a financial market in the narrower sense. Internal division of the securities market is similar to the entire financial market. This is the two-stage breakdown of the financial market.
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