Q.Distinguish between Money Market and Capital Market.

Both raise funds for companies and the government, but the two segments differ on almost every operational point once you go past that shared purpose.

The money market and the capital market are the two segments into which the financial market is classified, based on the maturity period of the instruments each deals in, and they differ on nearly every operational point that follows from this.

As to the period of funds, the money market deals in short-term funds not exceeding one year, while the capital market deals in medium- and long-term funds exceeding one year, or, for equity, funds with no fixed period at all. As to instruments, the money market uses call money, Treasury Bills, commercial paper, certificates of deposit and commercial bills, while the capital market uses equity shares, preference shares, debentures and bonds. As to liquidity, the money market is very highly liquid, while the capital market is comparatively less liquid for any single transaction, though the stock exchange restores meaningful liquidity. As to risk, the money market is low-risk, given short maturities and creditworthy participants, while the capital market carries comparatively higher risk. As to participants, the money market is dominated by institutions — the RBI, banks, financial institutions, large corporates — while the capital market draws in a much wider base, including individual retail investors. As to trading venue, the money market has no single exchange and is largely over-the-counter, while the capital market is traded on organised stock exchanges such as the BSE and NSE. As to the regulator, the money market is regulated …

Students often state only 'money market = short-term, capital market = long-term' and stop, without going on to explain the DOWNSTREAM differences (regulator, participants, trading venue, instruments) that follow from t …