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Advantages And Disadvantages Of The Money Market And The Capital Market

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When we consider the financial market, it can be dividing into the Money Market and the Capital Market. The Money Market is the market for assets with maturities of less than one year, such as Treasury bills, commercial paper, and certificates of deposits. The major purpose 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, pension, and provident funds. 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 …show more content…

This is because there is no restriction on the amount of money that can be used for trading.
Transparency:
Information regarding Forex markets is easily available. Also, no country or Central Bank has the ability to single handedly corner the market or rig prices for an extended period of time. Short-term advantages may occur to some entities because of the time lag in passing information.
Trading Options:
Forex markets provide traders with a wide variety of trading options. Traders can trade in hundreds of currency pairs. They also have the choice of entering into spot trade or they could enter into a future agreement. Futures agreements are also available in different sizes and with different maturities to meet the needs of the Forex traders.
Transaction Costs:
Forex market provides an environment with low transaction costs as compared to other markets. This is primarily because Forex market is largely operated by dealers who provide a two way quote after reserving a spread for themselves to cover the risks. Pure play brokerage is very low in Forex markets.
Disadvantages of Forex …show more content…

Therefore, regulation of the Forex market is a difficult issue because it pertains to the sovereignty of the currencies of many countries. This creates a scenario wherein the Forex market is largely unregulated. Therefore, there is no centralized exchange, which guarantees the risk free execution of trades.

Leverage Risks:
Forex markets provide the maximum leverage. In the Forex market in a given day, it is possible that the investors will lose all of their investment in a matter of minutes if they placed highly leveraged bets.
Operational Risks:
Forex trading operations are difficult to manage operationally. If a person does not have the capital or the know how to manage their positions when they are away, Forex markets could cause a significant loss of value Reference: (www.managementstudyguide.com,

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