Question

State the difference between 'Capital Market' and 'Money Market' on any five basis.

Accepted Answer

Difference between Capital Market and Money Market: Basis Capital Market Money Market 1. Participants Financial institutions, banks, corporate entities, foreign investors and ordinary retail investors from members of the public. Institutional participants such as RBI, banks, financial institutions and finance companies. 2. Instruments Instruments traded are Equity shares, debenture, bonds, preference shares, etc. Instruments traded are: Short-term debt instruments such as—T. bills, trade bills, reports, commercial paper and certificates of deposit. 3. Investment outlay Investments do not necessarily require a huge financial outlay the value of units of securities is generally low, i.e., ₹ 10, ₹ 100 and so on. Transactions entail huge sums of money as the instruments are quite expensive. 4. Duration Deals in medium and long-term securities. Deals in securities having maximum tenure of one year and may even be issued for a single day. 5. Liquidity Securities are considered liquid investments because they are marketable on the stock exchanges but for some shares it is not easy to find a buyer. As compared to capital market money market instruments have higher degree of liquidity as there is a formal arrangement for this. 6. Safety Riskier in respect of returns and principal repayment. Much safer with a minimum risk of default. Expected 7. return Higher return, if securities are held for a longer period. As compared to capital market the return is lower.

Marking-scheme solution

More from Financial Markets

Basis	Capital Market	Money Market
1. Participants	Financial institutions, banks, corporate entities, foreign investors and ordinary retail investors from members of the public.	Institutional participants such as RBI, banks, financial institutions and finance companies.
2. Instruments	Instruments traded are Equity shares, debenture, bonds, preference shares, etc.	Instruments traded are : Short-term debt instruments such as—T. bills, trade bills, reports, commercial paper and certificates of deposit.
3. Investment outlay	Investments do not necessarily require a huge financial outlay the value of units of securities is generally low, i.e., ₹ $\displaystyle 10$, ₹ $\displaystyle 100$ and so on.	Transactions entail huge sums of money as the instruments are quite expensive.
4. Duration	Deals in medium and long-term securities.	Deals in securities having maximum tenure of one year and may even be issued for a single day.
5. Liquidity	Securities are considered liquid investments because they are marketable on the stock exchanges but for some shares it is not easy to find a buyer.	As compared to capital market money market instruments have higher degree of liquidity as there is a formal arrangement for this.
6. Safety	Riskier in respect of returns and principal repayment.	Much safer with a minimum risk of default.
Expected 7. return	Higher return, if securities are held for a longer period.	As compared to capital market the return is lower.