Aspect | Money Market | Capital Market |
Definition | Money market refers to the market for short-term debt instruments with maturities of one year or less. It deals with high-quality, low risk. | Capital Market refers to the market for long-term securities such as stocks, bonds and other long-term financial instruments, It facilitates the allocation of long-term funds. |
Participants | Commercial banks, central banks, financial institutions, corporations and government entities. | Investors, individuals, corporations, financial institutions, mutual funds, pension funds, insurance companies and government entities |
Instruments | Treasury Bills, Certificate of Deposit (CDs), repurchase agreement (repos), commercial paper, short-term government securities and money market funds. | Stocks, Bonds, corporate debentures, municipal bonds, asset-based securities, derivatives and other long-term financial instruments . |
Risk | Low risk due to short term nature and high-quality instruments. | Higher risk due to longer maturity and potential fluctuations in market condition |
Return | Lower return compared to capital market due to lower risk | Potentially higher returns due to longer investment horizon and greater risk exposure |
Liquidity | High quality as instruments has short-term maturities and can be easily traded | Relatively lower liquidity compared to money market as transactions involve longer-term securities. |
Primary Function | Provides a platform for borrowing lending, and investment in short-term funds | Facilitates the issuance, trading and investment in long-term securities to raise capital |
Secondary Market | Secondary market for money market instruments exists, allowing trading among investors | Secondary market for stocks, bond and other long-term securities where investors can buy/sell securities after the initial issuance |