Distinction between Capital Market and Money Market

Distinction between Capital Market and Money Market

Both the money market and the capital market are the centres which arrange for the transfer of funds from the suppliers of funds to the users of funds.

They differ, however, in regard to the maturity periods of the financial assets created and dealt with for affecting the transfer of funds. As explained earlier, money market arranges for short term and the capital market provides for medium to long-term funds. The time length in respect of short-term funds is less than and up to one year.

Money Market

  • It is a component of the financial markets where short-term borrowing takes place
  • Money Market is a segment of the financial market where lending and borrowing of short-term securities are done.
  • Financial instruments are Treasury Bills, Commercial Papers, Certificate of Deposit, Trade Credit etc.
  • It provides finance/money for short-term investment.
  • It acts as a link between the depositor and the borrower.

Capital Market

  • It is a component of financial markets where long-term borrowing takes place
  • Capital Market is a section of the financial market where long-term securities are issued and traded.
  • Financial instruments are Shares, Debentures, Bonds, Retained Earnings, Asset Securitization, Euro Issues etc.
  • It provides finance/money capital for long-term investment.
  • It acts as the middleman between the investor and the entrepreneur.