Money Market Vs Capital Market

Executive Summary

In this project, we first gave an introduction to explain the capital market and money market. Then we gave and overview of the financial markets (money market and capital market) in both the United States and Saudi Arabia. And finally, we compared the two markets to answer the question of which one is more developed and efficient.

Introduction

What is Money Market?

Money market is a financial market which deals with lending and borrowing short-term debt instruments which have maturity for less than or equal one year. The lenders are central bank, commercial banks, finance companies and insurance companies. The borrowers are traders, manufacturers, merchants, brokers and government.

Generally, money markets exist to

Banks do that when they do not have enough deposits at the Fed. So bank borrows these deposits from other bank and then transferring them by Fed wire transfer system.

Capital Market:

History of U.S. Capital Market:

In 1792, the Wall Street market opened. Now a synonym to stock exchange, the Wall Street market was only the first brick of regulated capital market in the United States. Before the Great Depression of 1929, there was little government regulation of capital market. But after the Great Depression, the public lost trust in capital market. In order to restore people’s faith in it, Congress held hearings to identify the problems and search for solutions:

“Based on the findings in these hearings, Congress — during the peak year of the Depression — passed the Securities Act of 1933. This law, together with the Securities Exchange Act of 1934, which created the SEC.”

How Does It Work?

In the United States, the capital market is the selling and buying of long-term securities backed by debt and equity. The capital market is supervised and regulated by the Securitas and Exchange Commission. But capital market activities take place in two major stock exchange markets: The New York Stock Exchange, and

Furthermore, the tasks of operating and regulating the market daily business were assigned to SAMA.”[1]

How Does It Work?

The Saudi money market scene is basically the money market instruments issued and paid by banks, corporations, and government. Generally, the money market is created when people with surplus funds want to lend these funds to people who need cash with short-term, high liquidity instruments. So is the case in Saudi Arabia, there are a few instruments traded and there is no particular place for them mainly because when a person or a corporation is in need of a short-term, high liquidity security or cash, they need it fast, having a particular place for these transactions will defeat the purpose of issuing them.

Money Market Instruments: There are a few money market instruments like repos, SAMA Bills, and foreign exchange swaps, bills of exchange, certificates of deposit, cheques, and promissory