Question

Distinguish between ‘Capital market’ and ‘Money Market’ on the basis of following: (i) Participants (ii) Safety (iii) Investment Outlay (iv) Expected Return

Accepted Answer

Distinction between capital market and money market: Basis Capital Market Money Market i Participants Financial institutions, banks, corporate entities, foreign investors and retail investors. Institutional participants like the RBI, banks, financial, institutions and finance companies. ii Safety Riskier both with respect to returns and principal repayment as the issuing companies may fail to perform or defraud investors. Much safer with a minimum risk of default. iii Investment outlay Does not necessarily require a huge financial outlay as the value of units of securities is generally low. Transactions entail huge sums of money as the instruments are quite expensive. iv Expected Return Higher return than the money market as the securities are held for a longer duration. Lesser returns as compared to Capital Market.

Marking-scheme solution

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	Basis	Capital Market	Money Market
i	Participants	Financial institutions, banks, corporate entities, foreign investors and retail investors.	Institutional participants like the RBI, banks, financial, institutions and finance companies.
ii	Safety	Riskier both with respect to returns and principal repayment as the issuing companies may fail to perform or defraud investors.	Much safer with a minimum risk of default.
iii	Investment outlay	Does not necessarily require a huge financial outlay as the value of units of securities is generally low.	Transactions entail huge sums of money as the instruments are quite expensive.
iv	Expected Return	Higher return than the money market as the securities are held for a longer duration.	Lesser returns as compared to Capital Market.

Distinguish between ‘Capital market’ and ‘Money Market’ on the basis of following: (i) Participants (ii) Safety (iii) Investment Outlay (iv) Expected…

Marking-scheme solution

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