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There are different financial assets available in the market such as commodities, stocks, currencies, bonds, and derivatives. A market is a place where both the buyers and sellers enter to deal with financial assets. There are various components present in the market, among which the two most important are the money market and the capital market. In the money market, the short-term liquid financial aspects are taken into consideration whereas in the long-term market the long-term securities such as government securities and shareholders are taken into account. In the economy of India, the capital market plays a key role in the growth and development of the country’s economy. The operation-related activities are part of the money market.
Role of the money market in India
The money market of India is basically involved in fulfilling the short-term requirements of the borrowers. It helps the borrowers to avail funds present in the market to meet the demands of the burrowers at considerable interest rates. It is in the money market in which the short-term funds are lent and borrowed for a short term. The shareholders play a significant role in the market as does the trade credit. The components of the money market are liquid and involve a huge amount of risk during the maturity period. The role of the money market in India needs to be specified in order to get an idea of the economic activities that take place in Indian markets.
The money market as mentioned earlier aims at fulfilling the requirements of the burrowers for the short term. The monetary authorities such as the shareholders take the responsibility for the management of money as well as liquidity in the economy. It is a very dynamic market which helps in the stability of the economy of the country. There are many risks associated with the money market. The trade-credit system in the market helps to keep an account of the portfolio of a wide range of financial assets. This portfolio management enables the creditors to reduce risk and increase the extent of profit.
Government securities are ensured in this type of market as it enables the government to access the liquid assets to meet its short-term requirements. The monetary policies formulated by the central bank play a key role in the development of the money market. Similarly, the money market of India also enables the effective implementation of the interest and monetary policy.
Role of capital market in India
The Capital market deals with long-term funds, and another trade credit is collected by the business organizations. The capital market enables business organizations to expand their business operations thereby delivering a remarkable financial operation. Individuals benefit from trade credit as they can easily acquire wealth and do savings in the future. It provides an opportunity for trade credit as the general public is interested to invest considering the government securities available in the economy. One of the major roles of the capital market is that it encourages entrepreneurs to transform their innovation into action thereby contributing to the growth of companies that focus on innovation and expansion.
The capital market can be useful in providing support to the borrowers when the banks fail to lend money to the borrowers. It provides multifarious opportunities to the financial as well as different institutions such as investment trusts, commercial banks, mutual funds, etc. so that the investors can get a huge return on the investment funds.
Conclusion
The money market deals with government securities such as certificates of deposits and treasury bills. The capital market, on the other hand, deals with bonds and shares of stocks. The level of risk is low in the money market whereas in the capital market the extent of risk is quite high. The actual and substitute of money are the components of the money market. The demand for and supply of short-term types of funds operates in equilibrium through the mechanism that involves the proper allocation of resources to mobilize trade credit. The money market and the capital market together helps in the growth and stability of the Indian economy.
