3-Diff Bet Money MKT & Capital MKT

DIFFERENCE BETWEEN MONEY MARKET AND CAPITAL MARKET
Money Market vs Capital Market

Both the money market and the capital market are the two different types of the financial markets where in the money market
is used for the purpose of short term borrowing and lending whereas the capital market is used for the long term assets i.e., the
assets which have the maturity of more than one year.
WHAT IS THE MONEY MARKET?

Money markets are unorganized markets where banks, financial institutions, money dealers and brokers trade in financial instruments
for a short period. They trade in short-term debt instruments like trade credit, commercial paper, certificate of deposit, T bills, etc.
which are highly liquid and can be redeemed in the period less than 1.
WHAT IS CAPITAL MARKET?
The capital market is a type of financial market where financial products like stocks, bonds, debentures are traded for a long duration
of time. They serve the purpose of long-term financing and long-term capital requirement. The Capital market is a dealer and an
auction market and consists of two categories:
 Primary market: A primary market where the fresh issue of securities are offered to the public
 Secondary market: A secondary market where issued securities are traded between the investors.
KEY DIFFERENCES :
 Short-term securities are traded in money markets whereas long-term securities are traded in capital markets
 Capital markets are well organized whereas money markets are not that organized
 Liquidity is high in the money market whereas liquidity is comparatively low in capital markets
 Due to high liquidity and low duration of maturity in money markets, Instruments in money markets are a low risk whereas
capital markets are the comparatively high risk
 A central bank, commercial banks and non-financial institutions are majorly work in money markets whereas stock exchanges,
commercial banks, and non-banking institutions work in capital markets
 Money markets are required to fulfill the capital needs in the short-term especially the working capital requirements and capital
markets are required to provide long-term financing and a fixed capital for purchasing land, property, machinery, building, etc.
 Money markets provide liquidity in the economy where capital markets stabilize the economy due to long-term financing and
mobilization of savings
 Capital markets generally give higher returns whereas money markets give a low return on investments
COMPARATIVE TABLE :
Basis for Comparison Money Market Capital Market
It is the part of financial market where Capital market is part of the financial market
Definition lending and borrowing takes place for short- where lending and borrowing takes place for the
term up to one year medium-term and long-term
Money markets generally deal in promissory

Types of instruments Capital market deals in equity shares, debentures,
notes, bills of exchange, commercial paper, T
involved bonds, preference shares, etc.
bills, call money, etc.
Institutions The money market contains financial banks, It involves stockbrokers, mutual funds,
involved/types of the central bank, commercial banks, financial underwriters, individual investors, commercial
investors companies, chit funds, etc. banks, stock exchanges, Insurance Companies
Nature of Market Money markets are informal Capital markets are more formal
Liquidity of the market Money markets are liquid Capital Markets are comparatively less liquid
Maturity period The maturity of financial instruments is The maturity of capital markets instruments is
generally up to 1 year longer and they do not have stipulated time frame
Since the market is liquid and the maturity is Due to less liquid nature and long maturity, the
Risk factor
less than one year, Risk involved is low risk is comparatively high
The market fulfills the short-term credit needs The capital market fulfills the long-term credit
Purpose
of the business needs of the business
The money markets increase the liquidity of The capital market stabilizes the economy due to
Functional merit
funds in the economy long-term savings
The returns in capital markets are high because of

Return on investment The return in money markets are usually low
higher duration
CONCLUSION :
 Both are part of the financial markets. The main aim of the financial markets is to channelize funds and to generate returns.
The financial markets stabilize the money supply by lending borrowing mechanism i.e. surplus funds are provided to
borrowers by the lenders.
 Both are required for the betterment of the economy as they fulfill the long-term and short-term capital needs of the business
and industry. The markets encourage individuals to invest money to gain good returns.
 Investors can tap into each of the markets depending on their needs. Capital markets are generally less liquid but provide good
returns at higher risk whereas money markets are highly liquid but provide lower returns. Money markets are also considered
safe assets.
 However, due to market anomalies and inefficiency due to some aberrations above may not hold. Investors try to look for
arbitrage opportunities due to such anomalies to get higher returns. Money markets are considered safe but they sometimes
give negative returns. Thus, investors should study the pros and cons of each financial instrument and the condition of the
financial market before putting their money for the short term or long term.
REFERENCES:
https://www.wallstreetmojo.com/money-market-vs-capital-market/

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DIFFERENCE BETWEEN MONEY MARKET AND CAPITAL MARKET

Money Market vs Capital Market

WHAT IS THE MONEY MARKET?

Basis for Comparison Money Market Capital Market

Money markets generally deal in promissory

The returns in capital markets are high because of

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