CBSE Class 12 Business Studies 2014 Outside Delhi Set 1 Paper

Question : 27

Total: 37

Differentiate between 'Capital Market' and 'Money Market' on the basis of the following:
(i) Meaning
(ii) Liquidity
(iii) Safety
(iv) Expected Return
(v) Duration

Solution:

The difference between capital market and money market are as follows:

Basis	Capital market	Money market
(i) 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.
(ii) Liquidity	Capital market securities are comparatively less liquid.	Management securities are comparatively more liquid
(iii) Safety	Instruments are riskier both with respect to returns and principal repayment as issuing companies may fail to perform as per projection.	Instruments are generally safe due to shorter duration of investment and financial soundness of the issuers.
(iv) 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 of the instruments.
(v) Duration	Securities traded are of medium term and long term wherein the maturity period is normally more than one year.	Securities traded are of short term only wherein the maturity period can vary from one day to a maximum of one year.

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