The branch of economics that studies the money and capital markets, the institutions and participants involved in them, policies for raising funds and distributing results among economic agents, the time value of money, interest theory, and cost of capital. The money market is an organized telephone market where financial assets that, due to their short term and high security, can be considered substitutes for money, such as Treasury bills or interbank balances, are exchanged daily. The capital market is the set of financial markets for stocks, bonds, and other fixed or variable income securities. Monetary assets, which make up the money market, are excluded from it. The cost of capital is a rate of return that a company must earn to be able to remunerate its own and external funds. It is related to the marginal interest rate that the company must pay for its external funds and with the implicit cost of capital increases (dividend promised in relation to the money contributed by the new shareholder). When analyzing a new investment, the present value of the cash flow generated by it, discounted at the cost of capital, must be greater than the amount of the investment.
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