How Do Money And Capital Market Differ From Each Other?

Capital markets and Money markets are two means of funding the worldwide financial system. Capital & money markets vary in: Time frame, Type of instrument, and Rate of return.

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Function

Both capital markets and money markets contribute the primary functions of providing capital funds to the companies.

Time Frame

One key difference among capital markets and money markets is the time frame for investments. In capital markets investments generally, have a maturity of greater than one year. In money markets, investments have maturity over a period of less than a year.

Types of Instruments

Primary instruments of money market include treasury bills, certificates of deposit and commercial paper. Basic investments in capital markets include stocks, shares, bonds, and debentures issued by companies.

Risk Level

Because the capital market has investment maturity of more than one year, so the investments tend to have a higher level of risk as compared to investments in the money market.

Rate of Return

While investments in the capital market tend to have a higher level of risk, they also generally offer a higher rate of return. This is a common philosophy in the investment world, more you willing to take the risk higher will be the chances of getting profit.