Commerce · Ch 6 — Money Market
Money Market vs. Capital Market
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Money Market vs. Capital Market
The money market and the capital market are both segments of the wider financial market, but they serve very different purposes and are structured quite differently. It is worth being precise about the distinction, since board questions frequently ask for it directly:
| Basis | Money Market | Capital Market |
|---|---|---|
| Maturity of instruments | Short-term, up to one year | Medium- to long-term (over one year), or even without any fixed maturity (equity shares) |
| Instruments traded | Treasury Bills, Commercial Paper, Certificates of Deposit, Call/Notice Money, Commercial Bills, Repo/Reverse Repo | Equity shares, debentures/bonds, preference shares |
| Purpose of funds raised | Working-capital / short-term liquidity needs | Fixed capital / long-term investment needs (setting up or expanding a business) |
| Main participants | RBI, commercial banks, financial institutions, corporates, mutual funds, Government of India | Companies (issuers), individual and institutional investors, stock exchanges, merchant bankers, underwriters |
| Regulator | Primarily the Reserve Bank of India (RBI), under the RBI Act, 1934 | Primarily the Securities and Exchange Board of India (SEBI), under the SEBI Act, 1992 |
| Risk and liquidity | Low risk, very high liquidity — instruments can typically be converted to cash quickly | Comparatively higher risk (especially equity), and liquidity depends on the depth of the secondary market (the stock exchange) for that security |