Financial Markets Overview

These are short-term tools used to raise cash quickly. Common examples include 'Call Money' (inter-bank loans for 1 day), 'Commercial Paper' (unsecured loans for large companies), and 'Certificates of Deposit' (issued by banks). These instruments are highly liquid, meaning they can be converted into cash very easily. They are safer than stocks but offer lower returns.

The Capital market has two main types of instruments. 'Equity' means owning a part of a company (shares). Investors get profits through dividends. 'Debt' means lending money to a company or government (bonds or debentures). In debt, the investor gets a fixed interest rate. Equity is riskier than debt because share prices can fall, but it can provide much higher returns in the long run.

Hedging is like an insurance policy for investments. It is a strategy used to limit risks in financial assets. For example, if a gold jeweler fears that gold prices will drop next month, he can enter a 'Futures Contract' to sell his gold at today's price. This protects him from a potential loss if the market price actually falls later.