The Distinction between Capital Market and Money Market

Capital market and money market are both important concepts in the world of business. Capital market refers to the market in which one’s savings and investments are channelized between suppliers and the ones who need supply. On the other hand, the money market includes that section within the financial market in which financial instruments with large liquidity and short-term maturities are dealt with. The money market can be called a part within the financial market wherein purchasing and selling of the short-term maturities, for example, treasury bills and commercial papers take place. 

Capital Market

A capital market is when the savers put their savings for investment purposes and with that, the companies and organisations get some cash flow for increasing their productivity. The capital market can be divided into two categories: primary capital market and secondary capital market. While in a primary capital market the new bonds and stocks are sold, in a secondary capital market the already existing securities are purchased and sold. Because of the presence of secondary markets, the willingness of investors in primary markets may increase. 

Money Market 

The component of the economy which helps in providing short term funds is known as the money market. The money market is mainly concerned with goals for a lesser period such as a year or even less than that. The core functions served by the money market include financing trade, investing profitably, increasing commercial banks’ self-sufficiency etcetera. The money market can be called an important part of financial markets.

The Distinction between Capital Market and Money Market

While both the money market and capital market are crucial for the world of business, they are different from each other in many aspects. A few of the differences between the capital market and the money market are listed below:

• Firstly, the money market refers to the trade-in of short-term debt
• It included a consistent flow of cash such as in terms of borrowing and lending for a year or even less than that
• On the other hand, the capital market includes trade in both stocks and bonds
• Such trade is long term
• Both the money market and capital market together form a pivotal part of the financial market
• Secondly, the money market can be less risky than the capital market
• The capital market can be potentially more rewarding than the money market 
• The investment objective in a money market is more likely to be that of maintaining wealth whereas in a capital market the investment objective can be that of generating wealth
• The level of volatility in a money market is low whereas in a capital market it can be higher
• Examples of money markets include treasury bills and commercial papers
• Examples of the capital market include stock shares and bonds

Thus, these are some prominent differences between the capital market and the money market. Depending on the individual’s goals, personal choice and desire one can invest. 

Conclusion

The money market and capital market together form a pivotal component of the financial market. A capital market is when the sellers and buyers come together wherein the cash flow invested can be used for enhancing the productivity of the company. The money market is another essential component of the financial market that helps in providing short term funds. Both money market and capital market differ from each other in several aspects. Primarily, the money market is short-term whereas the capital market is long term. Further, some other differences include the level of risk involved in a money market is less whereas in a capital market it tends to be higher, the money market can be less risky than the capital market and lastly the level of volatility in a money market is low whereas in a capital market it can be higher.