Financial Market is a market where funds are transferred from the fund surplus to fund scarce individuals, firms, corporates or companies. The financial market provides capital to fund scarce entities by mobilizing the savings of peoples. Depending upon the duration for which funds need to be mobilized, the financial market is also further categorized as Money Market and Capital Market or short term and long term markets respectively.
These are explained as one by one:
1). Money Market
This is the market which needs to be approached for short terms funds i.e. funds having a maturity period of less than one year. A money market is regulated by the Reserve Bank of India (RBI). When companies need working capital for a shorter period, they approach money market.
Some of the important instruments of the money market are Treasury Bills, Commercial Papers, Cash Management Bills, Repo and Reverso Repo, Money market mutual funds, Call money and term money and many more.
2). Capital Market
This is regulated by the Securities and Exchange Board of India i.e. SEBI. The capital market caters to the long-term fund requirement by firms or companies having a maturity period of more than one year. The stock market and banking industry are the main players in the capital market because these provide long-term funds by share subscription to the public and by sanctioning loans with a maturity period of more than one year.
The Capital market may be further classified as the primary and secondary market. Where the shares of a company are issued to the public for the first time, then it is called Initial Public Offer i.e. IPO and it is issued in the primary market. While when the same share is traded on the stock exchange for the liquidity then that market is called the secondary market.