FINANCIAL MARKET

AND INSTITUTION
Submitted by : shadha hanan vm
19usba05
Submitted to:Anjana mam
 DIFFERENCE
BETWEEN MONEY
MARKET AND
CAPITAL MARKET
 Introduction
Both the money market and the capital market are the
two different types of the financial markets where in the
money market is used for the purpose of short term
borrowing and lending whereas the capital market is
used for the long term assets i.e., the assets which have
the maturity of more than one year.
 What is the Money Market?

■ Money markets are unorganized markets where

banks,financial institutions,money dealers and brokers
trade in financial instruments for a short period of time.
They trade in short-term debt instruments like trade
credit, commercial paper, certificate of deposits , T bills,
etc. which are highly liquid and can be redeemed in the
period less than 1.
■ Trading in the money market is done mostly through over
the counter (OTC) i.e. no or little use of exchanges.
What is Capital Market?

■ The capital market is a type of financial market where financial

products like stocks, bonds, debentures are traded for a long
duration of time. They serve the purpose of long term
financing and long-term capital requirement. The Capital market
is a dealer and an auction market and consists of two categories:
■ Primary market: A primary market where the fresh issue of
securities are offered to the public
■ Secondary market: A secondary market where issued securities
are traded between the investors.
Differences between money market
and capital market
■ Short-term securities are traded in money markets
whereas long-term securities are traded in capital
markets
■ Capital markets are well organized whereas money
markets are not that organized
■ Liquidity is high in the money market whereas liquidity
is comparatively low in capital markets
■ Due to high liquidity and low duration of maturity in
money markets, Instruments in money markets are a low
risk whereas capital markets are the comparatively high
risk
■ A central bank, commercial banks and non-financial
institutions are majorly work in money markets whereas
stock exchanges, commercial banks, and non-banking
institutions work in capital markets
■ Money markets are required to fulfill the capital needs in
the short-term especially the working capital
requirements and capital markets are required to provide
long-term financing and a fixed capital for purchasing
land, property, machinery, building, etc.
■ Money markets provides liquidity in the economy where
capital markets stabilize the economy due to long-term
financing and mobilization of savings
■ Capital markets generally give higher returns whereas
money markets give a low return on investments
■ Credit instruments : certificate of deposit,repurchase
agreements,commercial paper,federal funds,municipal
notes,treasury bills,money fund,foreign exchange swaps
etc. are instruments of money market and
stock,shares,debentures,bonds,securities of government
are in capital market.
Conclusion
■ Both are part of the financial markets. The main aim of the
financial markets is to channelize funds and to generate returns.
The financial markets stabilize the money supply by lending
borrowing mechanism i.e. surplus funds are provided to
borrowers by the lenders.
■ Both are required for the betterment of the economy as they
fulfill the long-term and short-term capital needs of the business
and industry. The markets encourage individuals to invest money
to gain good returns.
■ Investors can tap into each of the markets depending on
their needs. Capital markets are generally less liquid but
provide good returns at higher risk whereas money markets
are highly liquid but provide lower returns. Money markets
are also considered safe assets.
■ However, due to market anomalies and inefficiency due to
some aberrations above may not hold. Investors try to look
for arbitrage opportunities due to such anomalies to get
higher returns. Money markets are considered safe but they
sometimes give negative returns. Thus, investors should
study the pros and cons of each financial instrument and
the condition of the financial market before putting their
money for the short term or long term.
Reference

■ Wallstreetmojo.com
■ www.slideshare.net.com