Question

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

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.

Marking-scheme solution

More from Financial Markets

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.