Secretarial Practice · Ch 11 — Financial Market
Distinction Between Money Market and Capital Market, and Between Primary Market and Secondary Market
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Distinction Between Money Market and Capital Market, and Between Primary Market and Secondary Market
Bringing together, in one place, the money market and capital market studied separately earlier in this chapter — and, within the capital market, its primary and secondary segments — makes it far easier to answer a distinguish-type question accurately in an MSBSHSE Secretarial Practice examination, since students frequently confuse the two pairs with one another.
| Basis | Money Market | Capital Market |
|---|---|---|
| Period of funds | Short-term — not exceeding one year | Medium- and long-term — exceeding one year, or no fixed period (equity) |
| Instruments | Call money, Treasury Bills, commercial paper, certificates of deposit, commercial bills | Equity shares, preference shares, debentures, bonds |
| Liquidity | Very high | Comparatively lower for a single transaction, though the stock exchange restores liquidity |
| Risk | Low | Comparatively higher |
| Participants | Mainly institutions — RBI, banks, financial institutions, corporates | Wide base — individual investors as well as institutions |
| Trading venue | No single exchange; largely over-the-counter / telephonic | Organised stock exchanges (BSE, NSE) |
| Regulator | Reserve Bank of India | Securities and Exchange Board of India (SEBI) |
| Purpose | Meets short-term working-capital and liquidity needs | Meets long-term, fixed-capital needs |
| Basis | Primary Market | Secondary Market |
|---|---|---|
| Meaning | Market for the first issue of new securities | Market for buying and selling already-issued securities |
| Also called | New issue market | Stock market / stock exchange |
| Parties | Company and investor, directly | Investor and investor, through the exchange |
| Effect on company's funds | Company directly receives fresh capital | No fresh funds reach the company |
| Price | Fixed by the company/lead manager (issue price) | Determined continuously by market demand and supply |