money bond

definition Money markets 3 basic characteristics:

- They are usually sold in large denominations
- They have low default risk
They mature in one year or less from their original issue date

Money market is part of financial markets. The money markets can be
characterized as having securities that trade in one year or less, are of
large denomination, and are very liquid.
Bonds :
- like money market instruments, but they have maturities that
exceed one year.
- are securities that represent debt owed by the issuer to the
investor, and typically have specified payments on specific dates.
- interest rate is the cost of borrowing.

Investing in Bonds: most popular alternative to investing in the stock
market for long-term investments
roles Main roles of money markets:
- Channel funds from savers to borrowers.
- A distinct cost advantage for money markets over banks.
- Provide a place for warehousing surplus funds for short periods of
time.
- Provide low-cost source of temporary funds.
- Provide a way to solve the cash-timing problems.

participants To the investors:
Provides a place for warehousing surplus funds for short periods of
time
To the borrowers:
Provide low-cost source of temporary funds
Bank
Borrowing and lending to each other
Using commercial paper and repurchase agreements; certificate of
deposit
Large corporations with strong credit ratings
- Issue commercial paper on their own credit
Federal, state and local governments
- Issue paper to meet funding needs

Why
participate
a. Banks Main business : receiving deposits and lending;
Banks may need to borrow from other FIs and lending to others as
well.

Money market instruments used by banks: interbank borrowing,
commercial papers, repurchase agreements, certificate of deposit.

b.Federal, state and local governments issue treasury bills to meet
funding needs. Government also invests money in money market
when having excess fund.

c.Businesses both invest and borrow in the money markets. They
borrow to meet short-term cash flow needs, often by issuing
commercial paper. They invest in all types of money market securities
as an alternative to holding idle cash balances, e.g. treasury bills,
federal funds, repurchase agreements, negotiable certificates of
deposit, bankers acceptances etc.
The participants are important to the bond market because:
Without issuers, bond market cannot have bonds to be sold to the
investors.
Without investors, fund cannot be raised for the issuers.
In general, bond market cannot perform well without the
support from both investors and issuers.
advantages The principal owners do not have to share their ownership with
bondholders.
Bondholders do not have a voice in policies that affect the company
operations.
How they
complement
banking
system

Money market: The securities in the money market are short term
with high liquidity. It provides a place for warehousing surplus funds
for short periods of time, and provides low-cost source of temporary
funds. Corporations and the government use these markets because
the timing of cash inflows and outflows are not well synchronized.
Money markets provide a way to solve these cash-timing problems
Bond market: A financial market for long term fund. It helps investors
to invest their surplus for longer term. Besides, It provides a place for
government and corporations to source for long term funds.




stock
Roles - A stock market or equity market is a public entity for the trading of company stock (shares) at an agreed price.
- It provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based
on the company's future performance.
importance The stock market is important from both the industrys point of view as well as the investors point of view.
Industrys point of view:
A company can raise funds for further expansion or settling up a new business venture.
Stock market is the primary source for any company to raise funds for business expansions.
To issue shares for the investors to invest in the stocks a company needs to get listed to a stocks exchange and through the primary market
of the stock exchange they can issue the shares and get the funds for business requirements.
The stock market is primarily the place where these companies get listed to issue the shares and raise the fund. In case of an already listed
public company, they issue more shares to the market for collecting more funds for business expansion. The stock exchange plays the most
important role of supporting the growth of the industry and commerce in the country.
Investors point of view:
The market plays the role of a common platform for the buyers and sellers of these stocks that are listed at the stock market.
Stockholders can:
Earn a return in two ways, i.e. price of the stock rises over time; Dividends are paid to the stockholder
Become an owner in a firm
Have claim on all assets
Have right to vote for directors and on certain issues.
advantages A Company can raise more capital than it could borrow.
A Company does not have to make periodic interest payments to creditors.
A Company does not have to make principal payments.
How it
complement
bank system
Stock market: The stock exchange provides and maintains a central market-place or facility for buyers and sellers to transact business in the
shares, bonds and different types of securities of companies which are listed on the exchange.