How do Money Market and Capital Market differ?
"Finance & Investment"
Money Market V/S Capital Market
The main factor that shows the difference between money market and capital market is time or term that is money market deals in short term funds and capital market deals in long term funds.
Money Market regulates by RBI whereas the capital market regulates by SEBI.
Money Market Instrument is bills of exchange, certificates of deposits, treasury bills, commercial paper, etc. whereas Capital Market Instrument is shares, debentures, bonds, etc.
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Understanding Financial Market
To know about Money or Capital market first we have to understand about Financial Market.
In this buyers and sellers trade financial assets like bonds, commodities, currencies, stocks, and derivatives.
It has many types one of them is the capital and another is the money market. Let us discuss the difference between them.
Capital Market
In this buying and selling did as a long-term investment in which money is provided for a long time more than one year.
It is risky and these are for long-term financial growth and stability.
The instrument of this is stocks, bonds, shares, etc., and it's regulated by SEBI.
In this brokers deal in long-term debt and equity capital in the form of shares, public deposits, and debenture.
Interest rates or dividend rates depend on the supply and demand of securities and on the stock market’s Sensex conditions.
Now the capital market is also divided into two parts.
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Primary Market
In this buyer buys the stocks from sellers and the seller sells the stock for the first time.
This transaction is made between issuers and investors.
Secondary Market
In this buyer buys existing stock from the seller.
It means investors buy or sell the existing securities.
This transaction was made between investors.
Another important segment of this is the bond and stock market.
Money Market
In this buy and selling did for short term period up to one year or less than one year, its range from 30 days to a year, sometimes for loans that as expected to pay back as early as overnight.
Here lending and borrowing are done for the short term thus; an investor who wants to place an investment for a short term period goes to the money market.
The instrument of these deposits is bills of exchange, collateral loans, commercial paper, treasury bills, repurchase agreements, and certificates of deposit.
This is related to cash flow, it is the place where banks deal in short-term loans in the form of treasury bills and commercial bills.
The rate of interest is controlled by the RBI or the central bank of any country.
It provides many functions to individuals, corporate and it plays an important role in ensuring companies maintain an appropriate level of liquidity on a daily basis.
Generally, investors invest funds in the money market in a safe manner article Submission, thus it is considered a low-risk market.
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