Difference Between Money Market And Capital Market
The major dissimilarities or difference between money market and capital market can be pointed out as follows:
1. Introduction
Money Market: A market where financial instruments with short maturity period such as bills of exchange, commercial papers etc. are traded.
Capital Market: A market where financial instruments with long maturity period such as shares, bonds, debentures etc. are traded.
2. Maturity Period
Money Market: Short maturity period (Maximum 1 year)
Capital Market: Long maturity period ( More than 1 year)
3. Related To
Money Market: It is related to short term debt
Capital Market: It is related to long-term borrowing
4. Type Of Market
Money Market: It is informal type of financial market
Capital Market: It is formal type of financial market
5. Objectives
Money Market: It helps the business firms to meet short term financial requirements such as working capital, operating expenses etc.
Capital Market: It helps the firms to meet long term financial requirements such as investment on assets and other properties.
6. Risk Involved
Money Market: Because of more liquidity and short time horizon, it is less riskier than capital market.
Capital Market: Because of less liquidity and long maturity period, it involves more risk than money market.
7. Return
Money Market: It has less return on investment because of less risk and short maturity period.
Capital Market: It generates more return because of long maturity period and high level of risk.
8. Instruments Traded
Money Market: Commercial papers, promissory notes, trade credit etc. are traded in money market.
Capital Market: Bonds, equity shares, preference shares, debentures etc. are traded in capital market.
Also Read:
Also Read:
9. Convertible Into Cash
Money Market: Easily convertible into cash because of high liquidity
Capital Market: Difficult to convert into cash because of less liquidity.
10. Nature
Money Market: Credit instruments are homogeneous in nature
Capital Market: Instruments are heterogeneous in nature.
Money Market Vs Capital Market (Comparison Chart)
I hope this post is helpful to understand the difference between money market and capital market and to make comparison between them.
Money Market Vs Capital Market (Comparison Chart)
Basis
|
Money Market
|
Capital Market
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Introduction
|
Market that concerns with the trading of short term financial instruments
|
Market which is concerned with the trading of long-term financial instruments
|
Maturity Period
|
Short
|
Long
|
Related To
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Short term debt
|
Long term borrowings
|
Market Type
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Informal
|
Formal
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Objective/Purpose
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Fulfill short-term financial need
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Fulfill long term financial requirements
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Risk
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Less
|
High
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Return
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Less
|
More
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Instruments
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Commercial paper, trade credit, promissory notes etc
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Bonds, equity shares, preference shares etc.
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Nature Of Instrument
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Homogeneous
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Heterogeneous
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Convertible Into Cash
|
Easy
|
Difficult
|
I hope this post is helpful to understand the difference between money market and capital market and to make comparison between them.
