Difference Between Money Market And Capital Market
The financial market brings together the sellers and the buyers in the same platform to trade in different financial assets like bonds, stocks, derivatives, currencies, and commodities. The financial market’s purpose is to raise the capital, transfer risk and liquidity and fix the trade price in the global market. Even though there are various components to the financial market, the most used market is the capital market and money market.
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The money market is usually used by the corporate entities and the government as a medium for lending and borrowing short-term securities that can be held only for less than one year. The capital market is used frequently for assets that are long-term in nature, those which have maturities of more than one year.
It is one of the widely followed markets as of today. Capital market consists of the debt market and equity market. Both these markets are followed closely and the daily movements get analyzed as they act as a proxy for the economic condition of world markets. Hence, all the institutions that are part of the capital market like commercial banks, stock exchanges, corporations, etc are scrutinized carefully.
While the investors take on risk and invest their funds in the capital market, the money market is the place one can go to invest their funds to enjoy the liquidity and the safety it offers. Also, the funds that are required within a period of one year can be invested here. The instruments of this market are collateral loans, acceptances, bills of exchange, etc.
There are both similarities and difference between money market and capital markets. From an issuer’s standpoint, both these market offers similar business function: it maintains adequate funding. The sellers will access each of this market on the basis of their time horizon and liquidity.
Also, the buyers or the investors also will have unique reasons to choose each of these markets. The capital market offers investments that are of high risk in nature whereas the money market offers assets that are safer. But the return on the capital market is higher.