Money Market and Capital Market

· Money Market: Money market is a market where short term securities such

as treasury bills, certificates of deposits and commercial bills are traded.
Following are some features of money market:
a. Maturity period: The money market deals in the lending and borrowing of
short-term finance i.e. for one year or less.
b. Credit instruments: The main instruments of money market are treasury bills,
commercial papers, certificate of deposits which are of short term nature.
c. Institutions: Important institutions operating in the money market are central
bank, commercial banks, bill brokers, etc.
d. Risk: The degree of risk is small in the money market because maturity period
of credit instrument is one year or less.
e. Relation with central bank: The money market is closely and directly linked
with central bank of the country.
· Capital Market: Capital market is a market where long term financial
instruments with maturity period of more than one year are traded.
Following are some features of capital market:
a. Maturity period: The maturity period of financial instruments of capital
market is more than one year.
b. Credit instruments: The main instruments of capital market are debenture,
equities or shares and government securities which are of long-term nature.
c. Institutions: Important institutions of the capital market are stock
exchanges, development banks, finance companies
d. Risk: There is much greater risk in capital market because of long-term
maturity period of credit instruments.
Relation with central bank: There is no close relation between central bank and
capital market.