Money Market

Comparison between

Money market Capital Market

and

Submitted by Sujeel –Bin-Abdullah Roll No 32-MBA-06

MONEY MARKET:

According to RBI “The centre for dealings, mainly of short term character ,in monetary assets it meets the short-term requirements of the borrowers and provides liquidity for cash to the lenders” . By ” MONEY MARKET “ we mean simply an arrangement that brings about a direct or indirect contact between the lender or the borrower. The basic function is to provide the facilities for adjustment of liquidity positions of commercial banks ,business corporations, and other investors. Money market is the market for the short term financial assets which are near substitutes for money. Money market instruments are liquid and can be turned over quickly at low transaction cost and without loss. Money market instruments are for short duration ,generally speaking—less than one year CAPITAL MARKET: The capital market is the market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market. The capital market includes the stock market and the bond market. MONEY MARKET: According to RBI “The centre for dealings, mainly of short term character ,in monetary assets it meets the short-term requirements of the borrowers and provides liquidity for cash to the lenders” . By ” MONEY MARKET “ we mean simply an arrangement that brings about a direct or indirect contact between the lender or the borrower. The basic function is to provide the facilities for adjustment of liquidity positions of commercial banks ,business corporations, and other investors. Money market is the market for the short term financial assets which are near substitutes for money. Money market instruments are liquid and can be turned over quickly at low transaction cost and without loss. Money market instruments are for short duration ,generally speaking—less than one year The differences market are:

between the money market and the capital

1. MATURITY:

The money market deals with the short term borrowing and lending whereas the capital market deals with long term lending and borrowing usually going beyond one year. 2. CONCEPT: Money market is the centre for dealings, mainly of short term character ,in monetary assets it meets the shortterm requirements of the borrowers and provides liquidity for cash to the lenders” . The capital market is the market for securities, where companies and the government can raise long-term funds. 3. INSTRUMENTS: Some of the money market instruments are: Commercial paper market Treasury bills Market Certificate of deposits Commercial Paper Some the capital market instruments are: BOND MARKET it includes bonds such as fixed income bonds, government bonds , corporate bonds, municipal bonds and shares , debentures etc. 4 FUNCTION: The basic function of the money market is to meet the liquidity requirement whereas the capital market does not serve this purpose. Structure of the interest rates.The amount of the risk involved in short and long term is different .In fact ,the risk involved,in adding a bond of different maturity to the asset portfolio of an individual,is not constant.The risk avertion depends on a number of factors such as expected variance and covariance of the bond,the investors holding period etc.thus when an investor exhibits risk aversion,short term bonds cant be a close substitute for long term bonds. Again the interest rates differ between one tye of financial agency and other for borrowings from the money or capital market. Interest on bonds and debentures is not the same.

Time: Money market is a loan upto one year and capital market is more than one year.