Financial Institutions | Money Market, Instruments, Capital Market

Money Market The money market is a trading platform for short-term securities, involving institutions or individuals with funds to lend or a need for short-term borrowing.   Instruments Utilized In The Money Market Treasury Bills Issued by the Central Bank, these instruments enable the government to raise capital for a ninety-day period.   Treasury Certificate […]

Money Market

The money market is a trading platform for short-term securities, involving institutions or individuals with funds to lend or a need for short-term borrowing.

 

Instruments Utilized In The Money Market

  1. Treasury Bills

Issued by the Central Bank, these instruments enable the government to raise capital for a ninety-day period.

 

  1. Treasury Certificate

Similar to a Treasury Bill but with a longer maturation period (twelve to twenty-four months), earning a higher discount rate.

 

  1. Bill of Exchange

A promissory note where the debtor acknowledges the debt and commits to repayment within ninety days.

 

  1. Call Money Funds

Surplus funds are invested overnight through a special arrangement, enhancing liquidity in the money market.

 

Institutions Involved In The Money Market

  1. Central Bank
  2. Commercial Banks
  3. Acceptance House
  4. Finance House
  5. Discount House
  6. Insurance Companies

 

Functions Of The Money Market

  1. Provides working capital for day-to-day business operations.
  2. Generates extra income through investments in call money.
  3. Mobilizes savings.
  4. Promotes economic growth and development.
  5. Encourages good saving habits among those with surplus funds.
  6. Offers easily recallable investments.

 

Capital Market

Addressing the long-term funding needs of entrepreneurs, governments, and businesses, the capital market is where long-term securities are traded.

 

Instruments Utilized In The Capital Market

  1. Shares: Units of capital representing an individual portion of a company’s capital owned by a shareholder.
  2. Stock: Bundles of shares, fully paid and transferable in fractional amounts.
  3. Development Stock: Debt instruments enabling governments to secure long-term loans for periods exceeding five years.
  4. Bond: Interest-bearing or discounted government or corporate security obliging issuers to make periodic payments to bondholders.
  5. Debenture: Loan certificates for raising long-term loans, making debenture holders creditors rather than co-owners.

 

Institutions Involved In The Capital Market

  1. Issuing Houses
  2. Insurance Companies
  3. Development Banks
  4. Building Societies
  5. National Provident Fund (NPF)
  6. Stock Exchange

 

Functions Of The Capital Market

  1. Provides long-term loans for investment purposes.
  2. Facilitates public sector participation in the economy.
  3. Mobilizes savings for investment.
  4. Supports the growth and development of merchant banks.
  5. Enables the general public to participate in the country’s economic activities.

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