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Question : 2
Total: 5
Differentiate between 'capital-market' and 'money-market' on the basis of:
(i) Safety;
(ii) Expected return;
(iii) Meaning;
(i) Safety;
(ii) Expected return;
(iii) Meaning;
Solution:
| Basis | Capital Market | Money Market |
|---|---|---|
| (i) Safety | Capital market instruments are riskier both with respect to returns and principal repayment as issuing companies may fail to perform as per projection. | Money market instruments are generally safe due to shorter duration of investment and financial soundness of the issuers. |
| (ii) Expected return | The expected return is higher due to the possibility of earning capital gains along with regular dividends or interest. | The expected return is lower due to the shorter duration. |
| (iii) Meaning | The capital market refers to the market or the institutional facilities through which long-term funds are raised and invested. | The money market refers to the market where trading in short-term securities of maturity periods (varying from one day to a maximum of one year) takes place. |
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