Question:
Differentiate between Capital Market and Money Market on the basis of :
(i) Participants
(ii) Liquidity
(iii) Duration
Differentiate between Capital Market and Money Market on the basis of :
(i) Participants
(ii) Liquidity
(iii) Duration
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Capital market has wide participants, liquidity through stock exchanges and long duration. Money market has mostly institutional participants, a higher degree of liquidity and duration up to one year.
Updated On: Oct 26, 2026
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Solution and Explanation
Step 1: Meaning of the two markets:
The capital market is the market for long-term securities like shares, debentures and bonds. The money market is the market for short-term funds, up to one year.
The three bases are compared below.
Step 2: Basis (i): Participants:
Capital market: the participants include financial institutions, banks, corporate bodies, foreign investors and retail individual investors.
Money market: the participants are mainly the RBI, banks, financial institutions and large corporates. Individual retail investors seldom take part.
Step 3: Basis (ii): Liquidity:
Capital market: securities are considered liquid, as they are marketable on the stock exchanges where they can be sold.
Money market: instruments enjoy a higher degree of liquidity, as there is a formal arrangement for it, for example the Discount and Finance House of India (DFHI) provides a ready market for them.
Step 4: Basis (iii): Duration:
Capital market: it deals in long-term funds, with some securities having no maturity.
Money market: it deals in funds for a short period, up to one year.
Final Answer:
The capital market has varied participants (including retail investors), liquidity through stock exchanges and long duration. The money market has mainly institutional participants, a higher degree of liquidity and short duration.
The capital market is the market for long-term securities like shares, debentures and bonds. The money market is the market for short-term funds, up to one year.
The three bases are compared below.
Step 2: Basis (i): Participants:
Capital market: the participants include financial institutions, banks, corporate bodies, foreign investors and retail individual investors.
Money market: the participants are mainly the RBI, banks, financial institutions and large corporates. Individual retail investors seldom take part.
Step 3: Basis (ii): Liquidity:
Capital market: securities are considered liquid, as they are marketable on the stock exchanges where they can be sold.
Money market: instruments enjoy a higher degree of liquidity, as there is a formal arrangement for it, for example the Discount and Finance House of India (DFHI) provides a ready market for them.
Step 4: Basis (iii): Duration:
Capital market: it deals in long-term funds, with some securities having no maturity.
Money market: it deals in funds for a short period, up to one year.
Final Answer:
The capital market has varied participants (including retail investors), liquidity through stock exchanges and long duration. The money market has mainly institutional participants, a higher degree of liquidity and short duration.
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