Money Market vs Capital Market


The money market is designed for the provision of short-term funds. It is an institution through which corporations and individuals with funds meet the needs of borrowers with temporary shortage of funds. A security or loan
maturing within one year or less is considered as a money market instrument. One major function of the money market is to finance the working capital needs of corporations and provide the government with short-term fund. The money market also supplies funds for speculative buying of securities and commodities.


Capital markets are designed to finance long-term investment by government, corporations and households. Securities traded in the capital market take more than one year to mature and range in size from small loans to multi-million credits. For instance, if the government wants to undertake road construction, it will have to go for a long-term loan. A company that wants to embark on an expansion of its factory will also need to finance such an activity through a long-term source of fund such as issue of stocks or contracting long-term loan through the capital market.

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