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1.

Differentiate between ‘capital-market’ and ‘money-market’ on the following basis:(i) Participants;(ii) Instruments; (iii) Investment outlay;(iv) Duration and(v) Liquidity

Answer»

The major points of distinction between the two markets are as follows: 

BasisCapital MarketMoney Market
Participants

The participants in the capital market are financial institutions, banks, corporate entities, foreign investors and ordinary retail investors from public.

Participation in the money market are institutional participants such as the RBI, banks, financial institutions etc.
InstrumentsThe main instruments traded in the capital market are – equity shares, debentures, bonds, preference shares etc.The main instruments traded in the money market are short term debt instruments such as T-bills, trade bills reports, commercial paper and certificates of deposit.
Investment outlayInvestment in the capital market does not necessarily require a huge financial outlay. The value of units of securities is generally low.In the money market, transactions entail huge sums of money as the instruments are quite expensive.
DurationThe capital market deals in medium and long term securities such as equity shares and debentures.Money market instruments have a maximum tenure of one year, and may even be issued for a single day.
LiquidityCapital market securities are considered liquid investments but less compared to money market.Money market instruments on the other hand, enjoy a higher degree of liquidity.
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