Question

Differentiate between Capital Market and Money Market on the basis of: (i) Investment outlay (ii) Instruments (iii) Safety OR State how the following…

Accepted Answer

Difference between Capital Market and Money Market: Basis Capital Market Money Market --- --- --- (i) Investment outlay Investment in the capital market does not necessarily require a huge financial outlay i.e, the value of units of securities is generally low. In the money market, transactions involve huge sums of money as the instruments are quite expensive. (ii) Instruments The main instruments traded in the capital market are equity shares, debentures, bonds, preference shares, etc. The main instruments traded in the money market are short term debt instruments such as T-bills, trade bills reports, etc. (iii) Safety Capital market instruments are riskier both with respect to returns and principal repayment. Money market is generally much safer with a minimum risk of default. OR (b) State how the following factors affect the requirements of fixed capital of a company: (i) Choice of technique (ii) Growth prospects (iii) Financing alternatives Factors affecting the requirements of fixed capital of a company: (i) Choice of technique: A capital-intensive organization requires higher investment in plant and machinery whereas a labour-intensive organization requires less investment in fixed assets. (ii) Growth prospects: Higher growth of an organization generally requires higher investment in fixed assets, consequently larger fixed capital. (iii) Financing alternatives: Availability of leasing facilities as compared to purchase of assets, reduces the funds required to be invested in fixed assets, thereby reducing the fixed capital requirements.

Differentiate between Capital Market and Money Market on the
basis of :
(i)
Investment outlay
(ii)
Instruments
(iii)
Safety

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Basis	Capital Market	Money Market
(i) Investment outlay	Investment in the capital market does not necessarily require a huge financial outlay i.e, the value of units of securities is generally low.	In the money market, transactions involve huge sums of money as the instruments are quite expensive.
(ii) Instruments	The main instruments traded in the capital market are equity shares, debentures, bonds, preference shares, etc.	The main instruments traded in the money market are short term debt instruments such as T-bills, trade bills reports, etc.
(iii) Safety	Capital market instruments are riskier both with respect to returns and principal repayment.	Money market is generally much safer with a minimum risk of default.

(a)OR(b)Differentiate between Capital Market and Money Market on thebasis of :(i)Investment outlay(ii)Instruments(iii)SafetyState how the following factors affect the requirements of fixedcapital of a company :(i)Choice of technique(ii)Growth prospects(iii)Financing alternatives

Marking-scheme solution

More from Financial Markets

Differentiate between Capital Market and Money Market on the
basis of :
(i)
Investment outlay
(ii)
Instruments
(iii)
Safety