Question 3

Distinguish between Capital Market and Money Market.

Answer

Difference between capital market and money market:

Basis Capital Market Money Market
Meaning It is a market dealing in securities for long-term funds. It is a market dealing in securities of short-term funds.
Duration Period of maturity is more than one year. Period of maturity ranges from one day to one year.
Liquidity Only actively traded securities enjoy liquidity. In this market, there is a formal arrangement of creating liquidity.
Safety Element The transactions are made in the instruments issued by the financial institutions and financially strong companies. In this market, securities of every company (big or small, financially weak or strong) are bought and sold. Hence, there is more risk involved.
Instructions Main instruments traded are shares, debentures, bonds, preference shares, etc. Instruments traded are t-bills, commercial bills, Certificate of deposits, etc.
Expected Returns

The expected rate of return is less due to short duration.

The expected returns are high and there is even a possibility of capital gain.

 

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