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Why

participate

a. BanksMain business : receiving deposits and lending;

Banks may need to borrow from other FIs and lending to others as

well.

Money market instruments used by banks: interbank borrowing,

commercial papers, repurchase agreements, certificate of deposit.

b.Federal, state and local governmentsissue treasury bills to meet

funding needs. Government also invests money in money market

when having excess fund.

c.Businesses both invest and borrow in the money markets. They

borrow to meet short-term cash flow needs, often by issuing

commercial paper. They invest in all types of money market securities

as an alternative to holding idle cash balances, e.g. treasury bills,

federal funds, repurchase agreements, negotiable certificates of

deposit, bankers acceptances etc.

The participants are important to the bond market because:

Without issuers, bond market cannot have bonds to be sold to the

investors.

Without investors, fund cannot be raised for the issuers.

In general, bond market cannot perform well without the

support from both investors and issuers.

advantages The principal owners do not have to share their ownership with

bondholders.

Bondholders do not have a voice in policies that affect the company

operations.

How they

complement

banking

system

Money market: The securities in the money market are short term

with high liquidity. It provides a place for warehousing surplus funds

for short periods of time, and provides low-cost source of temporary

funds. Corporations and the government use these markets because

the timing of cash inflows and outflows are not well synchronized.

Money markets provide a way to solve these cash-timing problems

Bond market:A financial market for long term fund. It helps investors

to invest their surplus for longer term. Besides, It provides a place for

government and corporations to source for long term funds.

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stock

Roles - A stock market or equity market is a public entity for the trading of company stock (shares) at an agreed price.

- It provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based

on the company's future performance.

importance The stock market is important from both the industrys point of view as well as the investors point of view.

Industrys point of view:

A company can raise funds for further expansion or settling up a new business venture.

Stock market is the primary source for any company to raise funds for business expansions.

To issue shares for the investors to invest in the stocks a company needs to get listed to a stocks exchange and through theprimary market

of the stock exchange they can issue the shares and get the funds for business requirements.

The stock market is primarily the place where these companies get listed to issue the shares and raise the fund. In case of an already listed

public company, they issue more shares to the market for collecting more funds for business expansion. The stock exchange plays the most

important role of supporting the growth of the industry and commerce in the country.

Investors point of view:

The market plays the role of a common platform for the buyers and sellers of these stocks that are listed at the stock market.

Stockholders can:

Earn a return in two ways, i.e. price of the stock rises over time; Dividends are paid to the stockholder

Become an owner in a firm

Have claim on all assets

Have right to vote for directorsand on certain issues.

advantages A Company can raise more capital than it could borrow.

A Company does not have to make periodic interest payments to creditors.

A Company does not have to make principal payments.

How it

complement

bank system

Stock market: The stock exchange provides and maintains a central market-place or facility for buyers and sellers to transact business in the

shares, bonds and different types of securities of companies which are listed on the exchange.