Financial Markets Overview

The Financial Market, which is the market for credit and capital, can be divided into the Money Market and the Capital Market. The Money Market is the market for short-term interest- bearing assets with maturities of less than one year, such as Treasury bills, commercial paper, and certificates of deposits. The major task of the Money Market is to facilitate the liquidity management in the economy. The main issuers in the Money Market are the Government, banks and private companies, while the main investors are banks, insurance companies and pension and provident funds. The inter-bank Foreign Exchange market is also closely connected with the money market of the financial market. The inter-bank forex market is the place where currencies are traded between banks. The Capital Market is the market for trading in assets for maturities of greater than one year, such as Treasury bonds, private debt securities (bonds and debentures) and equities (shares). The main purpose of the Capital Market is to facilitate the raising of long-term funds. The main issuers in the Capital Market are the Government, banks and private companies, while the main investors are pension and provident funds and insurance companies.

The Financial Market can also be classified according to instruments, such as the debt market and the equity market. The debt market is also known as the Fixed Income Securities Market and its segments are the Government Securities Market (Treasury bills and bonds) and the Private Debt Securities Market (commercial paper, private bonds and debentures). Another distinction can also be drawn between primary and secondary markets. The Primary Market is the market for new issues of shares and debt securities, while the Secondary Market is the market in which existing securities are traded.

The Central Bank through its conduct of monetary policy influences the different segments of the Financial Market in varying degrees. The Central Bank's policy interest rates have the greatest impact on a segment of the Money Market called the inter-bank call money market and a segment of the Fixed Income Securities Market, i.e. the Government Securities Market.