Last Updated: Saturday, January 23, 2016

How does Money Market differ from Capital market?

After reading this article you can understand;

  • What is the difference between money market and capital market?
  • How does Money market differ from Capital market?
  • Money Market Vs. Capital Market.
  • What is the purpose of the financial market?
  • Financial Markets: Capital Vs. Money Markets
  • What do you mean by capital market?
  • What is a money market instrument?
  • Difference Between Money Market and Capital Market.

1. Capital Market: under "Capital Market" buying and selling is done as a long term investment in which money is provided for a long time i.e. for more than 12 months. It is risky and these are for long term financial growth and stability. The instruments of "Capital Market" are Stocks, Bonds, Shares, etc. "Capital Market" is regulate by SEBI. In this brokers deal in long term debt and equity capital in the form of shares, public deposits and debenture. Interest rates or dividend rates depend on supply and demand of securities and on stock market’s Sensex conditions. 
"Capital Market" may broadly be divided into two parts.

  • Primary Market: In this buyer buys the stocks from sellers and seller sell the stock for the first time. In this transaction is made between issuers and investors.
  • Secondary Market: In this buyer buys existing stock from seller. It means investors to buy or sell the existing securities. In this transaction is made between investors.
Another important segment of this is Bond and Stock market.
2. Money Market: In this buy and selling done for short term period up to one year or less than one year, mainly its range from 30 days to a year, sometimes for loans that are expected to be paid back as early as overnight. Here lending and borrowing are done for short term thus; an investor who wants to place investment for short term period goes to the money market. The instrument of this is deposits, bill of exchanges, collateral loans, commercial paper, treasury bills, repurchase agreement and certificates of deposit. This is closely related to cash flow, it is the place where banks deal in short term loans in the form of treasury bills and commercial bills. The rate of interest is controlled by RBI or central bank of any country. It provides many functions to individual, corporate and it plays an important role in ensuring companies to maintain an appropriate level of liquidity on a daily basis. Generally, investors invest funds in the money market in a safe manner, thus it is consider as a low risk market.
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  1. This is closely related to cash flow, it is the place where banks deal in short term loans in the form of treasury bills and commercial bills

  2. Hello Jackson!
    Thanks for sparing valuable time here. I have posted some stuffs on money making and stock market check it out.further i m going to publish an article on "Cash flow in capital market", your valuable comment/suggestion on it will highly be appreciated.