Economics · Ch 10 — Money Market and Capital Market in India
Distinguishing the Money Market from the Capital Market
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Distinguishing the Money Market from the Capital Market
Although both are components of the same Indian financial system, the money market and the capital market differ sharply on almost every dimension — maturity, instruments, participants, risk, and regulator.
| Basis | Money Market | Capital Market |
|---|---|---|
| Maturity | Short-term — up to one year | Long-term — more than one year, or no fixed maturity (equity) |
| Purpose | Meets working-capital and short-term liquidity needs | Finances fixed capital formation and long-term investment |
| Instruments | Call money, Treasury Bills, Commercial Paper, Certificates of Deposit, Commercial Bills | Equity shares, debentures/bonds, government securities |
| Risk | Low — instruments are highly liquid and often sovereign- or bank-backed | Higher — returns depend on long-run business/project performance |
| Liquidity | Very high — near-money | Lower — though the secondary/stock-exchange market provides an exit route |
| Main participants | RBI, commercial banks, large corporates, government | Companies, government, retail and institutional investors, stock exchanges |
| Primary regulator | Reserve Bank of India (RBI) | Securities and Exchange Board of India (SEBI) |
Definition 1Working Capital
The funds a business needs for its day-to-day operations — such as purchasing raw materials and meeting short-term expenses — typically financed through money-market borrowing …
Definition 2Fixed Capital
The funds invested in long-term productive assets such as land, buildings, plant, and machinery, typically financed through capital-market instruments rathe …