Question

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

Accepted Answer

‘Capital market’ and ‘Money Distinction between Market’ Basis Capital Market Money Market (i) Duration Capital market deals in medium term and long term securities. Money market securities have a maximum tenure of one year. (ii) Liquidity Capital market securities are comparatively less liquid as a share may not be actively traded or may not easily find a buyer. Money market instruments enjoy a higher degree of liquidity as there is a formal agreement for this. (iii) Safety Riskier as issuing companies may fail to perform or defraud investors. Much safer with a minimum risk of default. (iv) 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.

Marking-scheme solution

More from Financial Markets

	Basis	Capital Market	Money Market
(i)	Duration	Capital market deals in medium term and long term securities.	Money market securities have a maximum tenure of one year.
(ii)	Liquidity	Capital market securities are comparatively less liquid as a share may not be actively traded or may not easily find a buyer.	Money market instruments enjoy a higher degree of liquidity as there is a formal agreement for this.
(iii)	Safety	Riskier as issuing companies may fail to perform or defraud investors.	Much safer with a minimum risk of default.
(iv)	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.