Difference between Capital Market and Money Market

Difference between Capital Market and Money Market

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.

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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

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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Chart of difference between Capital Market and Money Market min 150x150 - Difference between Capital Market and Money Market
Chart of difference between Capital Market and Money Market
application pdf 150x150 - Difference between Capital Market and Money Market
Chart of difference between Capital Market and Money Market

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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