6.03  Money Market vs. Capital Market

. Money Market vs. Capital Market The difference between a money market and capital market is briefly stated in the following table. Sl. No Features Money Market Capital Market Duration of Funds It is a market for short-term loanable funds for a period of not exceeding one year. It is a market for long-term funds exceeding period of one year. Supply of Funds This market supplies funds for financing current business operations working capital requirements of industries and short period requirements of the government. This market supplies funds for financing the fixed capital requirements of trade and commerce as well as the long-term requirements of the government. Deals with Instruments It deals with instruments like commercial bills (bill of exchange, treasury bill, commercial papers etc.). It deals with instruments like shares, debentures, Government bonds, etc., Money Value Each single money market instrument is of large amount. A treasury bill is of minimum for ` 25000. Each certificate of deposits or commercial paper is for minimum of ` lakhs. Each single capital market instrument is of small amount. Each share value is ` . Each debenture value is ` . Role of Major Institution The central bank and commercial banks are the major institutions in the money market. Development banks and Insurance companies play a dominant role in the capital market. Place of Transaction Transactions mostly take place over the phone and there is no formal place. Transactions take place at a formal place. Eg. stock exchange. Participants Transactions have to be conducted without the help of brokers i.e., Bankers, RBI and Government. Transactions have to be conducted only through authorized dealers i.e., Brokers, Investors, Merchant Bankers, Underwriters and Commercial Banks. Number of Instruments Dealt The number of instruments dealt in money market are include ) Inter-bank call money ) Notice money upto days ) Short-term deposits upto 3months )  days Treasury bill )  days Treasury bill ) Commercial papers etc., The number of instruments in capital market is very few namely, shares and debentures. 12th Commerce Unit - - . . AM Claims Financial claims, assets and securities are dealt in the Money Market. Bonds and shares are dealt in the Capital Market Risk Low credit and market risk. High credit and market risk Liquidity High liquidity in Money Market Low liquidity in Capital Market Price Discovery No price discovery mechanism and exists in this Market. Price discovery mechanism exists in Capital Market Regulator Central Bank is the Regulator of Money Market. Besides Central Bank, Special regulatory authority like SEBI, etc., Underwriting Underwriting is not a primary function. It is a primary function. Dominant Institutions Commercial Banks are the dominant institutions. Non-banking financial companies and special financial institutions.