Comparison between

Money market and

Capital Market
 Submitted
by

Sujeel –Bin-Abdullah

Roll No 32-MBA-06

MONEY MARKET:
 According to RBI “The centre for dealings, mainly of short term
character ,in monetary assets it meets the short-term
requirements of the borrowers and provides liquidity for cash to
the lenders” . By ” MONEY MARKET “ we mean simply an
arrangement that brings about a direct or indirect contact
between the lender or the borrower. The basic function is to
provide the facilities for adjustment of liquidity positions of
commercial banks ,business corporations, and other
investors. Money market is the market for the short term
financial assets which are near substitutes for money. Money
market instruments are liquid and can be turned over quickly at
low transaction cost and without loss. Money market
instruments are for short duration ,generally speaking—less
than one year

CAPITAL MARKET:

The capital market is the market for securities, where

companies and the government can raise long-term funds. The
capital market includes the stock market and the bond
market. The capital market includes the stock market and
the bond market.

MONEY MARKET:

According to RBI “The centre for dealings, mainly of short term

character ,in monetary assets it meets the short-term
requirements of the borrowers and provides liquidity for cash to the
lenders” . By ” MONEY MARKET “ we mean simply an arrangement
that brings about a direct or indirect contact between the lender or
the borrower. The basic function is to provide the facilities for
adjustment of liquidity positions of commercial banks ,business
corporations, and other investors. Money market is the market for
the short term financial assets which are near substitutes for
money. Money market instruments are liquid and can be turned
over quickly at low transaction cost and without loss. Money market
instruments are for short duration ,generally speaking—less than
one year

The differences between the money market and the capital

market are:
1. MATURITY: The money market deals with the short term
borrowing and lending whereas the capital market deals with
long term lending and borrowing usually going beyond one
year.
2. CONCEPT: Money market is the centre for dealings, mainly of
short term character ,in monetary assets it meets the short-
term requirements of the borrowers and provides liquidity for
cash to the lenders” . The capital market is the market for
securities, where companies and the government can raise
long-term funds.
3. INSTRUMENTS: Some of the money market instruments
are:

Commercial paper market

Treasury bills Market

Certificate of deposits

Commercial Paper

Some the capital market instruments are:

BOND MARKET it includes bonds such as fixed income

bonds, government bonds , corporate bonds, municipal
bonds and shares , debentures etc.

4 FUNCTION: The basic function of the money market is to meet

the liquidity requirement

whereas the capital market does not serve this purpose.

Structure of the interest rates.The amount of the risk

involved in short and long term is different .In fact ,the risk
involved,in adding a bond of different maturity to the asset
portfolio of an individual,is not constant.The risk avertion
depends on a number of factors such as expected variance and
covariance of the bond,the investors holding period etc.thus
when an investor exhibits risk aversion,short term bonds cant
be a close substitute for long term bonds. Again the interest
rates differ between one tye of financial agency and other for
borrowings from the money or capital market. Interest on bonds
and debentures is not the same.
Time: Money market is a loan upto one year and capital market
is more than one year.