Question

Differentiate between ‘Capital Market’ and ‘Money Market’ on the basis of the following :
(i) Participants
(ii) Instruments
(iii) Duration

Hint:

Money Market = Maturity $<1$ year.
Capital Market = Maturity $> 1$ year.

Answer 1

Step 1: Understanding the Concept:
Financial markets are classified based on the maturity period of the instruments traded. The Money Market handles short-term credit, while the Capital Market handles long-term debt and equity.
Step 2: Detailed Explanation:
\begin{tabular}{|l|p{5cm}|p{5cm}|} \hline Basis & Money Market & Capital Market
\hline Participants & Institutions like RBI, Commercial Banks, NBFCs, and large Corporate houses. & Individual investors, Stock Brokers, Mutual Funds, Financial Institutions, and Banks.
\hline Instruments & Short-term debt instruments like Treasury Bills, Call Money, and Certificates of Deposit. & Long-term instruments like Equity Shares, Preference Shares, and Debentures/Bonds.
\hline Duration & Deals in short-term funds with a maturity period of up to one year. & Deals in medium and long-term funds with a maturity period of more than one year.
\hline \end{tabular}
Step 3: Final Answer:
The Money Market is a wholesale market for low-risk, short-term debt, while the Capital Market is for long-term investments involving higher risk.