Assumptions in Pension Fund Accounting
Accounting for pension funds is considered to be much more complex than standard accounting. This is because a lot of the payments being made in the pension funds are to be done in the distant future. Hence, as an accountant, provisions have to be made to account for these expenses as well as incomes that […]
Advantages of Salary Caps
In the previous article, we have already discussed what salary caps are and what are the objectives behind implementing them. We also know that there are a couple of different types of salary caps. We also know that the salary cap system is followed in almost every major league across the world. The English Premier […]
The Deepening Insolvency Theory
Timing is everything when it comes to bankruptcy claims. Any company facing the threat of bankruptcy has a duty to ensure that it maximizes the enterprise value. This means that the company, its lenders, and its managing officers have an inherent duty to ensure that one particular group of stakeholders is not benefitting at the […]
Disadvantages of Salary Caps
In the previous couple of articles, we have tried to understand what salary caps are. We also know the different types of salary caps, where they are followed across the world, their objectives as well as their advantages. It needs to be understood that the salary cap system is not free from its flaws. In […]
Role of Social Media in The Silicon Valley Bank Run
Bank runs have been part of the banking industry for a long time. This is an unintended consequence of the fractional reserve banking system which is followed by the banking industry across the globe. Bank runs were common during the 1920s when the Great Depression took place. However, with the passage of time, the banking […]
Financial markets are markets where financial instruments or securities are traded. Financial markets can be classified based on various parameters. In order to understand the types of financial markets, we need to first understand the broad categories in which it is subdivided.
The broadest classification divides financial markets into two types’ viz. money markets and capital markets. In this article, we will understand what money markets and capital markets are and the difference between the two.
The difference between money markets and capital markets is actually quite simple. Money markets transact in financial securities that have a maturity of less than one year. Commercial paper, short term treasury notes, promissory notes, and bills of exchange are commonly traded on the money market. Therefore, it can be said that money markets are used by firms who are looking to borrow money for a very short period of time.
On the other hand, securities sold on the capital markets have maturities that are at least longer than a year. Most financial instruments sold on these markets have extremely long term maturities i.e., a decade or more. Also, a lot of equity stock is sold in the capital market, and equities do not have any definite maturity! Preferred stock, common stock, bonds, gilts, and debentures are the financial instruments that are commonly transacted in the capital market. All stocks and bonds which retail investors commonly buy are said to be a part of the capital markets. Therefore, it would be fair to say that companies use the capital market when they want to raise money for the long term.
The bottom line is that capital markets and money markets both serve different but complementary needs. Hence, both thee markets complete the financial system of any country.
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