What is the difference between the Money Markets and Capital

What is the difference between the Money Markets and Capital Markets; provide examples of what investment vehicles are exchanged in each.

Solution

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Capital Market

Money Market

1

Capital market is for raising capital for the firm

Money market is for raising short term finances for the firm

2

Market participants are large corporation, Institutions, manufacturing firms

Participants are financial institution or selected financial institutions

3

Instruments are for long term of maturity period and can have no maturity period (equity)

Money market instruments are for equal to or less than 1 year

4

Higher expected returns due to duration of instruments

Lower expected return due to short duration of instruments

Examples for investment vehicle in each market:

Capital market instruments: Equity, debt instruments – bonds and debentures, preferred shared

Money market instruments: Commercial papers, Treasury bill, money on call, promissory notes etc..