Money market is a segment of the financial market where the securities are traded for shorter term and the risk associated with the money market is comparatively lower than the capital market. On the other hand, capital market is that section of the financial, market where the securities are traded for longer term and the risk is higher than the money market. The securities, which yield interest, are referred as the interest bearing securities. There are two types of interest bearing securities. One is fixed interest-bearing securities and the other is variable interest securities. The key interest rate in the capital market includes interest on public corporation bonds, government bonds, and rates on deposit of long-term debentures. The interest bearing securities in the money market include Treasury bill, commercial paper, certificate of deposits, money market bonds. The interest rate is the yield, which is paid to the owner of the Continue reading
Investment Analysis
Types of Issue of Shares in Indian Capital Market
The primary issue market is that component of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock. In the case of a new stock issue, this sale is an initial public offering (IPO). Primary markets create long term instruments through which corporate entities borrow from capital market. Primary market provides opportunity to issuers of securities, government as well as corporate, to raise resources to meet their requirements of investments and/or discharge some obligation. Primary market also known as New Issue Market as it deals with new securities which are not previously available and are offered for the investment to the public for the first time. The primary market enjoys neither any tangible form nor any administrative organizational set-up and is not subject to any centralized control and administration for the execution of Continue reading
Industry Analysis and Investment Decision
An investor must examine the industry in which a company operates because this can have a tremendous effect on its results, and even its existence. A company’s management may be superior, its balance sheet strong and its reputation enviable. However, the company may not have diversified and the industry within which it operates may be in a depression. This can result in a tremendous decline in revenues and even threaten the viability of the company. The first step in industry analysis is to determine the cycle it is in, or the stage of maturity of the industry. All industries evolve through the following stages: The Entrepreneurial or Nascent Stage: At the first stage, the industry is new and it can take some time for it to properly establish itself. In the early days, it may actually make losses. At this time there may also not be many companies in the Continue reading
Difference Between Money Market and Capital Market
In order to understand what the differences between things are you first need to understand what each of the items is. In this case before you can understand the difference between money market and capital market you are going to need to understand what money market is and what capital markets is. Once you understand the two items are it will be easier to see what the difference or differences are between the two markets. What is Money Market? Basically the money market is the global financial market for short-term borrowing and lending and provides short term liquid funding for the global financial system. The average amount of time that companies borrow money in a money market is about thirteen months or lower. Some of the more common types of things used in the money market are certificates of deposits, bankers’ acceptance, repurchase agreements and commercial paper to name a Continue reading
The Process of Diversification of Investment Portfolio
The process of diversification of investment portfolio has various phases involving investment into various classes of assets like equity shares, preference shares, money market instruments like commercial paper, inter-corporate investments, certificate of deposits etc. Within each class of assets, there is further possibility of diversification into various industries, different companies etc. The proportion of funds invested into various classes of assets, instruments, industries and companies would depend upon the objectives of investor, under portfolio management and his asset preferences, income and asset requirements. A portfolio with the objective of regular income would invest a proportion of funds in bonds, debentures and fixed deposits. For such investment, duration of the life of the bond/debenture, quality of the asset as judged by the credit rating and the expected yield are the relevant variables. Bond market is not well developed in India but debentures, partly or fully convertible into equity are in good Continue reading
Modern Portfolio Theory – Markowitz Portfolio Selection Model
Markowitz Portfolio Theory Harry Markowitz developed a theory, also known as Modern Portfolio Theory (MPT) according to which we can balance our investment by combining different securities, illustrating how well selected shares portfolio can result in maximum profit with minimum risk. He proved that investors who take a higher risk can also achieve higher profit. The central measure of success or failure is the relative portfolio gain, i.e. gain compared to the selected benchmark. Modern portfolio theory is based on three assumptions about the behavior of investors who: wish to maximize their utility function and who are risk averse, choose their portfolio based on the mean value and return variance, have a single-period time horizon. Markowitz portfolio theory is based on several very important assumptions. Under these assumptions a portfolio is considered to be efficient if no other portfolio offers a higher expected return with the same or lower risk. Continue reading