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October 6, 2013

Essay on Money and Capital Markets

Money and Capital Markets
The money market is broadly an informal market where financial institutions - national treasuries, central banks, commercial banks, fund managers, insurers, etc. And large companies (market paper), place their assets or borrow short-term (less than one or two years).With a volume roughly equivalent, the money market in the euro area and the United States are by far the most active and largest in the world. On some instruments, such as the repo, they together account for 90% of global trading.
A central bank uses the money market to manage daily liquidity (or excess pumping needs) of the banking system, and by osmosis, the economy in general (to fight inflation or deflation, for example, and in case of financial crisis, provide sufficient cash to avoid shutdown of the financial system, and even bankruptcies - what has been done including September 11, 2001 tragic incident.

 It drives interest rates in the short term  in the same vein of economic intervention placing the reserves of foreign central banks. In the late 1990s, they became huge, mainly in Asia and an important part of the activities of U.S. and European central banks in the markets conducted on behalf of Asian central banks.
Capital markets allow the meeting between the economic agents with excess capital and agents with financing needs. They are divided into three compartments: the financial market, money market and the credit market. Capital market, on the whole, is supported by the long term funding ensured by bonds and equity.

References

Frank J. Fabozzi, Steve V. Mann, Moorad Choudhry,(2002) The Global Money Markets, Wiley Finance, Wiley & Sons 

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