Question

Financial markets are forums in which suppliers and demanders of funds can transact business directly. The two key financial markets are the money market and the capital market.

Based on this information, what parts of today's environment of financial markets would you take into consideration when advising a manufacturing company. " Why?

Answer 1

When advising a manufacturing company, I would take into consideration both money markets and capital markets.

The capital market would be relevant for the firm when it seeks to raise new capital for expansion. In this situation, it could raise capital through common equity, preferred stock or debt. The capital market would provide the suppliers of capital who would invest in the securities of the firm.

The money market would be relevant for the firm when it seeks to fund it's working capital requirements or when it seeks to invest its excess funds for the short-term. The firm could invest its excess short-term funds by buying money market instruments such as short-term bonds, and the firm could issue short-term debt securities to fund it's short-term working capital requirements.