The term ‘source’ implies the agencies from which capital is procured in the business world. For two types of capital, viz., fixed and working, different sources are tapped by business enterprises. Fixed capital involving long-term financing is primarily available from two sources—buyers of securities and lenders of long-term funds. Working capital, on the other hand, involving partly long- term financing and partly short-term financing, can be procured from the suppliers of fixed capital as well as from the lenders of short-term funds. That is to say, the sale of securities and the borrowings of one kind or another are the principal means of securing capital on the part of business concerns.
Before going into the details of these sources, the ways in which the money is actually raised, the various considerations in selecting a source of finance, the finance manager should have a working knowledge of the mechanism of financial market as is operating in his country.
Financial market, as the name suggests, consists of various institutions, intermediaries and the instruments which are needed for the provision of loan able funds from those who have these to those who need or seek. For convenience sake, financial market is subdivided into two major groups– the long term funds market: called as ‘Capital Market’ and the short-term funds market called as ‘Money Market’. In actual practice, it is very difficult to classify finance market in such water- tight compartments as Capital Market and Money Market. In fact, there is lot of overlapping between the two and many a times we notice the participant of one market is visible in other market. Both these together are integral parts of one composite financial market.
These words ‘Capital Market’ and ‘Money Market’ have been deliberately mentioned here to make the reader aware of the fact that the sources of supply of funds and their significance— whether in long, medium or short term funds depend largely on the nature of financial mechanism that a country has. If it has developed one, we find the different relative roles of the different sources, where as in an underdeveloped financial market, the seekers of funds have to orient their financial strategy in different ways.