Business Studies · Ch 12 — Financial Markets
Distinction between Capital Market and Money Market
12.3.1
Distinction between Capital Market and Money Market
Although both are segments of the financial market, the capital market and the money market differ on several important counts, as the comparison below shows.
| Basis | Capital Market | Money Market |
|---|---|---|
| Participants | Financial institutions, banks, corporate entities, foreign investors and ordinary retail investors. | Largely institutional — the RBI, banks, financial institutions and finance companies. Individuals rarely transact here. |
| Instruments | Equity shares, debentures, bonds, preference shares, etc. | Short-term debt instruments such as T-bills, trade bills, commercial paper and certificates of deposit. |
| Investment outlay | Does not require a huge outlay; the value of a unit of a security is low, so small savers can participate. | Instruments are quite expensive, so transactions involve huge sums of money. |
| Duration | Deals in medium- and long-term securities such as equity shares and debentures. | Instruments have a maximum tenure of one year and may even be issued for a single day. |
| Liquidity | Securities are marketable on stock exchanges and so are liquid, though a particular share may not always find a buyer. | Enjoys a higher degree of liquidity through a formal arrangement (the DFHI). |