MONEY MARKET VS CAPITAL MARKET | SIMILARITIES AND DIFFERENCES

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A financial market is a marketplace for people, institutions and corporations to buy and sale of financial securities and derivatives.

The financial market can be divided into two parts: Money market and capital market.

The money market is a market where short term securities are traded whereas the capital market is a market where medium to long-term securities is traded.

In this post, we will look at the similarities and differences between these two markets. We start with the similarities

Similarities Between Money Market And Capital Market

1. Both are essential components of the financial market of any economy

2. Both can be used to raise finance and capital

3. Both are largely intangible, as most transactions are conducted online and do not necessitate the presence of a physical market.

4. Both markets are influenced by the central bank's policies and decisions

Differences Between Money Market And Capital Market

1. The money market is where short-term financial securities are traded, whereas the capital market is where medium- and long-term financial securities are transacted.

2. Treasury bills, call money, and commercial papers are among the instruments exchanged in the money market. on the other hand, shares and other long-term financial instruments are traded in the capital market.

3. Returns on capital market investments are larger than those on the money market.

4. While the money market offers companies and governments short-term financing, the capital market provides medium- to long-term financing to both enterprises and governments.

5. Money market instruments mature in less than one year, whereas capital market instruments mature in over a year.

6. While the money market is used to manage the liquidity of funds in the economy, the capital market is mainly used to mobilize savings to promote economic growth and development.

7. Capital markets are classified into primary and secondary markets, but the money market has no classification.

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