Question

Distinguish between capital market and money market.

Answer 1

The financial market is a place where investors deal in financial instruments. It provides a vehicle for allocation of savings to investment. It can be grouped as money market and capital market. Both the markets are very important in the financial sector. In the money market, extremely liquid financial instruments are traded, i.e. monetary instruments of short-term nature are dealt. On the contrary, the capital market is for long term securities. It is a market for those securities which have direct or indirect claims to capital.

Capital Market plays a crucial role in the development of the economy because it provides channels for mobilization of funds. On the other hand, money market possesses a range of operational features.