Question

(a) Differentiate between ‘Capital Market’ and ‘Money Market’ on the basis of the following: (i) Investment Outlay (ii) Liquidity (iii) Safety

Accepted Answer

Difference between ‘Capital Market’ and ‘Money Market’ BASIS CAPITAL MARKET MONEY MARKET (i) Investment Outlay Investment in capital market does not necessarily require a huge financial outlay as the value of units of securities is generally low. Investment in money market requires huge sums of money as the instruments are quite expensive. (ii) Liquidity Capital market securities are considered less liquid. Money market instruments enjoy a higher degree of liquidity as there is a formal arrangement for it. (iii) Safety Capital market instruments are riskier both with respect to returns and principal repayment. Money market instruments are generally much safer with minimum risk of default.

Marking-scheme solution

More from Financial Markets

BASIS	CAPITAL MARKET	MONEY MARKET
(i) Investment Outlay	Investment in capital market does not necessarily require a huge financial outlay as the value of units of securities is generally low.	Investment in money market requires huge sums of money as the instruments are quite expensive.
(ii) Liquidity	Capital market securities are considered less liquid.	Money market instruments enjoy a higher degree of liquidity as there is a formal arrangement for it.
(iii) Safety	Capital market instruments are riskier both with respect to returns and principal repayment.	Money market instruments are generally much safer with minimum risk of default.