Major Differences between Money Market and Capital Market | Money Market Vs Capital Market

India is a developing country, and we need money daily to expand our businesses or to establish new ones. To meet these financial needs, we have capital markets and money markets. Both had their importance within the economy; the money market is for short-term funds, while the capital market is for long-term funds; as we progress, we will have a better understanding of each idea and its differences.

The money market and the capital market are two separate sorts of financial markets; the money market is used for short-term borrowing and lending, while the capital market is used for long-term borrowing and lending. The capital market, on the other hand, is utilized for long-term assets, or those with a maturity of more than one year.

• Features of Money Market and Capital Market
• Money Market Vs Capital Market
• Key Differences between Money and Capital Markets
• What is the difference between the capital market and the money market in terms of time duration?
• If we have to raise money for our regular working capital then which type of market is the most suitable one?
• If we want to expand our business or we are looking for something new then which kind of market will be the best one?

Features of Money Market and Capital Market

Capital Market

• Entrepreneurial borrowers and savers are brought together.
• It is concerned with long-term Borrowing.
• It is necessary to hire agents in the capital market.
• It is governed by laws and regulations enacted by the government.
• Commercial and non-commercial securities are dealt with.
• Investors from other countries are also interested.

Money Market

• The maturity amount is less than one year.
• Deals with short-term borrowing.
• No need to hire a broker or agent for transactions.
• All the transactions can be done by phone, email, etc.
• The return on investment is comparatively lower than the capital market.
• It is mainly needed for running a business as working capital.

Money Market Vs Capital Market

Key Differences between Money and Capital Markets

• Money markets trade short-term securities, whilst capital markets deal long-term securities.
• Money markets are disorganized, but capital markets are well organized.
• The money market has a high level of liquidity, whereas capital markets have a low level of liquidity.
• Money market instruments have a low risk due to their high liquidity and short maturity term, whereas capital market products have a higher risk.
• Money markets are primarily dominated by the central bank, commercial banks, and non-financial institutions, whereas capital markets are dominated by stock exchanges, commercial banks, and non-banking institutions.
• Money markets are needed to provide short-term cash requirements, particularly working capital demands.
• Long-term finance and fixed capital are necessary for the purchase of land, property, machinery, and buildings, among other things, and capital markets are required.

Do Refer: Reasons for Your Business Loan Application Getting Rejected

FAQs on Differentiate between Money Market and Capital Market

1. What is the difference between the capital market and the money market in terms of time duration?
In the capital market money and security are issued for more than one year whereas In the money market the securities are issued for less than 1 year.

2. If we have to raise money for our regular working capital then which type of market is the most suitable one?
In this case, the firm or an individual should go for the money market because it provides securities for less than 1 year and doesn’t have a high risk.

3. If we want to expand our business or we are looking for something new then which kind of market will be the best one?
In this case, the individual should prefer the capital market because it provides higher funds and the redemption period is also more than 1 year.

Conclusion

We wish we have demonstrated both the money market and the capital market have advantages and disadvantages. In the post, we explored several themes related to the type of market we need to target for our company. The money market is a market where we issue securities and money for a short period, whereas the capital market issues securities for a long period.

When it comes to return on investment, the money market offers lower returns than the capital market. This was the fundamental distinction between the money and capital markets. Go through our article on Business Ideas You Can Start Online.