Difference WikiEconomics

Difference Between Money Market and Capital Market

Main Difference

The main difference between Money Market and Capital Market is that Money Market is using for short time loaning or borrowing, whereas Capital Market is a type of commercial market where companies generate long term securities.

Money Market vs. Capital Market

The money market is a runny fiscal market of short term borrowing. Whereas the capital market is a kind of financial market where long term securities are creating. Money market owns a variety of operative structures while Capital Market provides networks for enrollment of reserves. The money market aims to get short term credit requirements of the trade. That’s why it has a low-risk factor, whereas the capital market seeks to understand long term credit requirements of the deal, and it has a high-risk factor. The money market increases the fluidity of funds in the market, while the capital market creates the development of economics in the market.

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The maturity of the money market is up to a year, whereas the maturity of capital markets is longer, and they do not have specified time borders. The money market is casual, while capital markets are more official. The reoccurrence in money markets are generally very low, while the returns in capital markets are high because of the more significant period.

The money market is openly and thoroughly connecting with the central bank of the country. In contrast, the capital market is growing partially by strategies and conclusions of the Central Bank, but there is no direct connection with the Central Bank of the country. The central bank, commercial bank, non-financial institutions, etc. are the foremost institutes of the money market. In contrast, the leading operating institutes in the capital market are a stock exchange, commercial bank, non-banking institutions, etc.

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Comparison Chart

Money MarketCapital Market
It is a financial market where short-term securities are tradingA section of the market where long-term securities are issued and traded
Nature of Market
InformalFormal
Risk Factor
LowHigh
Time Limit
Within a yearMore than a year
Return of Investment
LessHigh
Liquidity
HighLow
Purpose
To complete short term credit needsTo complete long term credit needs

What is the Money Market?

A place of the monetary market where loaning and borrowing of short term securities are generating. These markets also know by the name wholesale market. It is highly runny, that is why their recovery period is up to one year limited. It delivers a short reoccurrence on investment. It is rather safe dealing instruments. Money Market is a disorganized market. It plays a central role in the movement of short-term assets in the economy. It supports the industries in accomplishing their working capital obligation. Companies issue stocks and bonds to raise money to grow their businesses

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The money markets increase the fluidness of funds in the economy, the return in money markets are usually low, the money market is less risky than the capital market, the Money market is entirely about professional relations and real rivalry. The borrower looks for running funds, while the lender looks for a rapid return. There are many groups and units such as Central bank, Commercial bank, non-financial institutions, bill brokers, acceptance houses, and so on who are providing benefits from the money market and are energetic contributors.

A singular may devote to the money market by purchasing mutual funds, creating a bank account, profitable papers, certificate of deposit, trading credit, and many more through the money market. Investments in the money market are seeing safe and have liquidity. The money market is very significant for businesses because it permits companies with a temporary cash surplus to invest in short-term securities

What is Capital Market?

A capital market is a kind of financial market where the securities of government or corporations are generating and dealing for the persistence of rising long term investment to see the capital requirement. The capital market satisfies the long-term credit necessities of the profession. This is such a type of marketplace where both consumers and venders come together to buy, sell, and trade in long term financial securities such as bonds, stocks, and so on. It is a market for those securities which have direct or indirect claims to capital

The maturity period is not limited to up to one year, it is more than a year, or sometimes the securities are completing. It plays an essential role in the growth of the economy, and the market plays a new position in mixing the capital in the marketplace between the suppliers of money and the users. The capital market works under full control of the Securities and Exchange Board to protect the interest of the investors.

The capital market is well organizing; the returns in capital markets are high. The capital market makes secure transactions of securities for stockholders and companies. It supports business expenditure at a particular time. It helps to reduce operation costs and statistics costs. It assembles the investments of parties from cash and other forms to markets. It also gives proposals to have insurance against market risk. Capital markets contain the primary market and the secondary market. All investors participate in the capital market to convert saving into long term investments.

Key Differences

  1. In the money market, short term securities are issuing, whereas, in the capital market, long term securities are issuing.
  2. The money market is not well organized; on the other hand, the capital market is well organized.
  3. The maturity of the money market instrument is one year. Conversely, the maturity of the capital market instrument is more than a year.
  4. A risk factor is low in the money market; on the flip side, the risk factor is high in the capital market.
  5. Money markets are informal; on the other hand, the capital market is more formal.
  6. The money market gives a low return, whereas the capital market provides high performance.
  7. The liquidity of the money market is high; on the flip side, liquidity of the capital market is low.

Conclusion

The money market and capital market are the portions of the financial markets. Both are requiring for the improvement of the global economy, and they both are completing the short-term and long term capital needs of the business and production.