The Difference Between Capital Market and Money Market represents the dealing with securities in different ways. In other words, Capital Market deals in medium and long-term securities whereas Money Market deals in short-term securities.
Meaning of Capital Market:
A capital market is a market where buyers and sellers involved in trade (buy and sell debt and equity)of financial securities. Examples of capital markets are American Stock Exchange, London Stock Exchange, New York Stock Exchange. It covers transferring the money from savers to entrepreneurial borrowers.
Definition:
“Capital market can be defined as the mechanism which channelizes savings into investment or productive use. It intermediates flow of savings of those who save a part of their income from those who want to invest it in productive assets”.
Meaning Of Money Market:
The money market includes wholesale transactions which take place between financial institutions and companies. It is the pillar of the Global Financial System that deals in short-term funds. And maintains appropriate liquidity in the market. It has no geographical location.
For Example loans, credit card receivables, residential/commercial mortgage loans, and similar financial assets.
Definition:
The term ‘Money Market’ is used to define a market where short-term financial assets with a maturity up to one year are traded. The assets are a close substitute for money and support money exchange carried out in the primary and secondary market.
-The Reserve Bank of India
The Chart of difference between Capital Market and Money Market
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Points of differences |
Capital Market | Money Market |
| Participants | The financial Institutions, Banks, Public and Private companies, Foriegn investors, retail investors are included. | Only Financial Institutions, Banks, Public and Private companies are participants in Money Market. But Foreign and retail investors are not included in this. |
| Type of capital | It is concerned with fixed capital requirements. | It is concerned with working capiital requirements. |
| Safety | The instruments in capital market is more riskier. | The instruments of Money Market is less risky due to short duration of securities. |
| Liquidity | The securities are considered less liquidity because of Stock exchange. | But in Money Market the securities have more liqidity. |
| Instruments | Shares,Debentures, prefrence shares Bonds and other securities are the instruments of Capital Market. | Treasury bills, trade bills, etc. are the main instruments of Money Market. |
| Expected Return | The expected return is higher with regular payment of interest and dividend. | The expected return is less due to short period duration of instruments. |
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Conclusion:
Thus, A capital market is a market where buyers and sellers involved in trade (buy and sell debt and equity)of financial securities. Whereas, the money market includes wholesale transactions which take place between financial institutions and companies. It is the pillar of the Global Financial System that deals in short-term funds.
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