what are the difference between the money market and the capital market?
Answers
indirect impact on the capital. Capital markets include equity market and debt market.
#1 – Money Markets
Money markets are unorganized markets where banks, financial institutions, money dealers and brokers trade in financial instruments for a short period of time. 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.
Trading in the money market is done mostly through over the counter (OTC) i.e. no or little use of exchanges. They provide businesses with short-term credit and play a major role in providing liquidity in the economy over the short term. It helps the business and industries with working capital requirements.
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#2 – Capital Markets
The capital market is a type of financial market where financial products like stocks, bonds, debentures are traded for a long duration of time. The 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.
Money Market vs Capital Market Differences Infographics
Here we provide you with the top 10 differences between Money market and Capital market
Money-Market-vs-Capital-Market
Key Differences Between Money Market and Capital Market
Let us point out key differences between money market and Capital market:
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
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 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
Money Market vs Capital Market Head to Head Differences
Let’s now look at the head to head differences between Money Market and Capital Market
Basis for Comparison between Money Market and Capital Market Money Market Capital Market
Definition Money market is part of the financial market where lending and borrowing takes place for short-term up to one year Capital market is part of the financial market where lending and borrowing takes place for the medium term and long-term
Types of instruments involved Money markets generally deal in promissory notes, bills of exchange, commercial paper, T bills, call money etc. Capital market deals in equity shares, debentures, bonds, preference shares etc.
Institutions involved/types of investors Money market contains financial banks, the central bank, commercial banks, financial Companies, chit funds etc. Capital market involves stockbrokers, mutual funds, underwriters, individual investors, commercial 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 generally up to 1 year The maturity of capital markets instruments is longer and they do not have stipulated time frame
Risk factor Since the market is liquid and the maturity is less than one year, Risk involved is low Due to less liquid nature and long maturity, the risk is comparatively high
Purpose The market fulfills short-term credit
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