MONEY MARKET Vs. CAPITAL MARKET :
The money market possesses different operational features as compared to capital market. Money market is distinguished from capital market on the basis of the maturity period, credit instruments and the institutions:
Maturity Period: The money market deals in the lending and borrowing of short-term finance varying for one year or less, while the capital market deals in the lending and borrowing of long-term finance for more than one year.
Credit Instruments: The main credit instruments of the money market are call money, treasury bills, commercial bills, commercial papers, and bills of exchange. On the other hand, the main instruments used in the capital market are stocks, shares, debentures, bonds, corporate deposits etc.
Institutions: Important institutions operating in the money market are central banks, commercial banks, acceptance houses, non banking financial institutions, bill brokers, etc. Important institutions of the capital market are stock exchanges, commercial banks and non banking institutions, such as insurance companies, mortgage banks, etc.
Purpose of Loan: The money market meets the short-term credit needs of business; it provides working capital to the industrialists. The capital market, on the other hand, caters the long-term credit needs of the industrialists and provides fixed capital to buy land, machinery, etc.
Risk and Liquidity: The degree of risk is small and that of liquidity is higher in the money market as compared to the higher risk and lower liquidity in the capital market.
Role of Central Bank: The central bank closely and directly has impact on the money market and its participants by framing its regulations and deciding various rates of interests that has impact on the parameters of an economy, while in case of capital market, central bank has an indirect link through other regulators like SEBI.
Market Regulation: In the money market, commercial banks are closely regulated. In the capital market, the institutions are not much regulated.