Distinction between Capital and Money Market
There is, however, basically a difference between the money market and capital market. The operations in money market are for a duration upto one year and deals in short term financial assets whereas in capital market operations are for a longer period beyond one year and therefore, deals in medium and long term financial assets. Secondly, the money market is not a well defined place like the capital market where business is done at a defined place viz. stock exchanges. The transactions in the money market are done through electronic media and other written documents. The major points of distinction are enumerated as below:
(1) In the Capital Market, there is classification between Primary Market and Secondary Market. While there is no such sub-division in money market, as such. However, slowly a secondary market in greater form is coming up in Money Market also.
(2) Capital Market supplies fund for long term requirement. In contrast, the Money Market generally supplies fund for short term requirement.
(3) If the volume of business of Capital Market is considered (both Primary and Secondary Markets), it will lag behind the total value of transaction in Money Market.
(4) While the number of instruments dealt with in the Money Market are many like
(a) Interbank Call Money,
(b) Notice Money upto 14 days
(c) Short-term deposits upto 3 months
(d) 91-days Treasury Bill
(e) 182-days Treasury Bill
(f) Commercial Paper etc.
The number of instruments in Capital Market are shares and debentures.
(5) The players in Capital Market are general investors, brokers, Merchant Bankers, Registrar to the issue, underwriters, Corporate Investors, Foreign Financial Institutions (Fll) and Bankers. While in money market the participants are Bankers, RBI and Government.
(6) Rate of interest in money market is controlled by RBI or central bank of any country. But capital market’s interest and dividend rate depends on demand and supply of securities and stock market’s sensex conditions. Stock market is regulated by SEBI.
(7) The degree of risk is small in the money market. The risk is much greater in capital market. The maturity of one year or less gives little time for a default to occur, so the risk is minimised. Risk varies both in degree and nature throughout the capital market.
(8) The money market is closely and directly linked with central bank of the country. The capital market feels central bank's influence, but mainly indirectly and through the money market.
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