Hi friends, in today’s article we are going to know about money market and capital market and also know the difference between money market and capital market. So let’s discuss in details.
Table of Contents
Money market and Capital Market
Money market and capital market are the integral parts of the financial system of a country. In order to compare these two markets, we have to make similarities and difference then.
• Complementary – The money market and capital market are complementary to each other are not competitive. Any type of financial planning must integrate the short term and long term programs of economic development through a proper coordination between short term and long term funds.
• Same Institutions – Certain institutions operate in money as well as capital markets. Commercial banks for example, which traditionally specialize in the short term funds, have started giving long term loan in the recent times.
• Interdependence – Money and capital markets are interdependent. Policies of one market have their impact on those of other. As for example- increase demand for funds in the capital market also raises the demand.
Difference between Capital Market and Money Market
Following are the important or main points of the difference between money market and capital market –
|(i) Money market is a part of financial market where lending and borrowing takes place for short term up to one year.
|(i) Capital market is a part of financial market where lending and borrowing takes place for medium term and long term.
|(ii) Money markets are informal.
|(ii) Capital markets are more formal.
|(iii) Money markets are liquid.
|(iii) Capital markets are comparatively less liquid.
|(iv) The return in money markets are usually low.
|(iv) The returns in capital markets are high because of higher duration.
|(v) The money markets increase the liquidity of funds in the economy.
|(v) The capital market stabilizes the economy due to long term saving.
|(vi) The money market fulfils short term credit needs of the business.
|(vi) The capital markets fulfils long term credit needs of the business.
|(vii) Since the money market is liquid and the maturity is less than one year, risk involved is low.
|(vii) Due to less liquid nature and long maturity, risk is comparatively high.
|(viii) Money markets contains financial banks, central banks, commercial banks, chief funds.
|(viii) Capital markets involves stocks brokers, individual investors, mutual funds, underwriters, commercial banks, stock exchange, insurance companies.
|(ix) Money market generally deals in promissory notes, commercial papers, bills of exchange, treasury bills, etc.
|(ix) Capital markets deals in equity shares, debentures, bonds, preference shares, etc.
|(x) The maturity of financial instruments is generally up to 1 year.
|(x) The maturity of capital markets instrument is longer and they do not have stipulated time frame.
So friends, this was the concept of money market and capital market difference. Hope you get the full details about it and hope you like this article.
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