Question

Distinguish between Money Market and Capital Market on the following basis: (i) Participants (ii) Instruments (iii) Duration (iv) Liquidity

Accepted Answer

Difference between Money Market and Capital Market Basis Money market Capital Market i Participants The participants are institutional participants such as the RBI, banks, financial institutions and finance companies. The participants are financial institutions, banks, corporate entities, foreign investors and ordinary retail investors from members of the public. ii Instruments The main instrumen- ts traded in the money market are short term debt instruments such as T-bills, trade bills reports, commercial paper and certificates of deposit. The main instruments traded in the capital market are – equity shares, debentures, bonds, preference shares etc. (iii) Duration Money market instruments have a maximum tenure of one year, and may even be issued for a single day. The capital market deals in medium and long term securities such as equity shares and debentures. (iv) Liquidity It has higher degree of liquidity. It has lesser liquidity.

Marking-scheme solution

More from Financial Markets

Basis	Money market	Capital Market
i Participants	The participants are institutional participants such as the RBI, banks, financial institutions and finance companies.	The participants are financial institutions, banks, corporate entities, foreign investors and ordinary retail investors from members of the public.
ii Instruments	The main instrumen- ts traded in the money market are short term debt instruments such as T-bills, trade bills reports, commercial paper and certificates of deposit.	The main instruments traded in the capital market are – equity shares, debentures, bonds, preference shares etc.
(iii) Duration	Money market instruments have a maximum tenure of one year, and may even be issued for a single day.	The capital market deals in medium and long term securities such as equity shares and debentures.
(iv) Liquidity	It has higher degree of liquidity.	It has lesser liquidity.