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Financial Institutions and Services

Notes The secondary bond markets play a market place for the bonds that are already issued in the
primary market while the secondary stock market trades those stocks that are already issued by
the issuers. The treasury bills secondary market handles the trading of treasury bills.
The secondary market trading is vital for the capital market. A study in the secondary market
trend can give some information on the investor's preference for liquidity. It means whether the
investors want to invest their money for a short period of time or a longer period. It has been
seen that the investors in the capital market do not prefer to put their money for the long term
investments. But the secondary market investors, however, can compensate their investments
with proper strategy.

The secondary market value of a stock or a bond is different from their face value. This happens
due to the fluctuating interest rates. The resale value of the bonds in the secondary market is
based on the interest rates at that very time when the sale goes through. In a typical secondary
market, when the interest rate falls, the bond value goes up while when the rate rises, the bond
value goes down.

2.3 Money Market

A money market can be defined as a market for short-term debt securities with a maturity of one
year or less and often 30 days or less. Money market securities are generally very safe investments
which return a relatively low interest rate that is most appropriate for temporary cash storage
or short-term time horizons.
The money market is better known as a place for large institutions and government to manage
their short-term cash needs. However, individual investors have access to the market through a
variety of different securities.

2.3.1 Types of Money Market

Money market can be of two types namely organized money market and unorganized money
market.

Organised money market: It comprises of commercial banks, financial institutions and all short
term asset trading institutions.
Unorganised money market: Along with the organized money market, there exists a very strong
unorganised money market, especially in countries that are developing but are still to be
developed. In such countries, people and small companies prefer taking loans from relatives,
usurers, sahukars, etc, instead of going and applying to organised institutions registered under
the monetary authorities.

2.3.2 Money Market Instruments

The money market can be defined as a market for short-term money and financial assets that are
near substitutes for money. The term short-term means generally a period up to one year and
near substitutes to money is used to denote any financial asset which can be quickly converted
into money with minimum transaction cost.
Some of the important money market instruments are briefly discussed below:

1. Call/Notice Money
2. Treasury Bills
3. Term Money

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