1. BY: FAIRUZ CHOWDHURY LECTURER, BRAC BUSINESS SCHOOL

2.  A financial market is a market that brings buyers and sellers together to trade in financial assets such as stocks, bonds, commodities, derivatives and currencies. The purpose of a financial market is to set prices for global trade, raise capital and transfer liquidity and risk.  Although there are many components to a financial market, two of the most commonly used are money markets and capital markets.

3.  Money markets are used for a short-term basis, usually for assets up to one year.  Used: for achieving short-term financing.  Provide: liquidity to investors.  Good place to "park" funds that are needed in a shorter time period - usually one year or less.

4.  transfer of large sums of money  transfer from parties with surplus funds to parties with a deficit  allow governments to raise funds  help to implement monetary policy  Medium to control creation of Credit

5. The Central Bank Commercial Bank Institutional Investors Private Individuals, partnership and Companies

6.  T-BILLS  COMERCIAL PAPERS  REPURCHASE AGREEMETNS  CERTIFICATE OF DEPOSITS  BANKER’S ACCEPTANCE ( LATER IN ITSELF)

7.  Treasury bills represent short-term borrowings of the Government.  Treasury bill market refers to the market where treasury bills are brought and sold.  Treasury bills are very popular and enjoy higher degree of liquidity since they are issued by the government.

8.  A treasury bill is nothing but a promissory note issued by the Government under discount for a specified period stated therein.  The Government promises to pay the specified amount mentioned therein to the bearer of the instrument on the due date.  The period does not exceed a period of one year.  It is purely a finance bill since it does not arise out of any trade transaction.

9.  Treasury bills are issued only by the BB on behalf of the Government.  Treasury bills are issued for meeting temporary Government deficits.  The Treasury bill rate of discount is fixed by the Bb from time-to-time.  It is the lowest one in the entire structure of interest rates in the country because of short-term maturity and degree of liquidity and security.

10.  91 days T- bill  182 days T- bill  364 days T- bill  2 years T-bond  5 years T-bond  10 years T-bond  20 years T-bond

11. In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of no more than 270 days. Commercial paper is a money-market security issued (sold) by large corporation to get money to meet short term debt obligations (for example, payroll), and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note. Rating companies??? Min denominations: $100000.

12. A Certificate of Deposit (CD) is a time deposit with a bank. CDs are generally issued by commercial banks but they can be bought through brokerages. They bear a specific maturity date (from three months to five years), a specified interest rate, and can be issued in any denomination, much like bonds. Like all time deposits, the funds may not be withdrawn on demand like those in a checking account.

13. Repo is a money market instrument, where securities are sold by their holder to an investor with an agreement to purchase them at a specified rate and date. Basically: a loan backed by securities. Common maturities: 15 days to 6 months Dealings: through telecommunications.

14.  Rate= SP – PP * 360 PP n Where, PP= Purchase Price SP= Selling Price N= Holding period

15. A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.

16. The Capital Market of Bangladesh consists of two part. They are- 1. Primary Market: The Primary Market is a place where new shares and bonds are offered. 2. Secondary Market: Secondary market is a place where existing shares and debentures are traded.

17.  Mobilization of financial resources on a nation wide scale,  Securing the foreign capital and know how to fill up the deficit in the required resources for economic growth at a faster rate,  Effective allocation of the mobilized financial resources by directing the same to projects yielding highest yield to the projects needed to promote balanced economic development.

18.  New Issue Market: The new issue market is called primary market where new shares or bonds are offered. Both the new companies and existing ones raise capital on the new issue market.  Stock Market: Secondary or stock market represents the secondary market where existing shares and debentures are traded. Stock exchange provides an organized mechanism of purchase and sale of existing securities.  Financial Institutions: Special financial institutions are the most active constituents of Money Market. Such organizations provide medium and long-term loans repayable on easy instalments to big business houses.

19.  Complementary: The Money Market and the Capital Market are complementary to each other and are not competitive. The difference between two is only of degree rather than of kind.  Same Institutions: Certain institutions operate in money as well as capital markets. For example, commercial banks operate in money market as well as in Capital Market.  Interdependence: Money Market and Capital Market are interdependent. The activities and policies of one market have their impact on those of the other.