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The difference between capital markets and money markets


In order to understand what the differences between things are you first need to understand what each of the items is. In this case before you can understand the difference between capital markets and money markets you are going to need to understand what capital markets are and what money markets are. Once you understand the two items are it will be easier to see what the difference or differences are between the two markets.

What is capital market?
Basically the capital market is a type of financial market, it includes the stocks and bonds market as well. But in general the capital market is the market for securities where either companies or the government can raise long term funds. One way that the companies or the government raise these long term funds is through issuing bonds, which is where a person buys the bond for a set price and allows the government or company to borrow their money for a certain time period but they are promised a higher return for allowing them to borrow the money, the higher return is paid through interest that accrues on the money that the government or company borrows.


Another way that the companies or government can raise money in the capital market is through the stock market, most of the time you don't see the government as a part of the stock market, but it can actually happen so we need to include them. But how the stock market works is that the companies decide to sell shares of their stock, which is basically ownership in the company, to ordinary people and other companies, as a way to raise money. The people who buy the stock are usually given dividends each year, if the company has agreed to pay out dividends, so that is another possible return on their investment.

The capital market actually consists of two markets. The first market is the primary market and it is where new issues are distributed to investors, and the secondary market where existing securities are traded. Both of these markets are regulated so that fraud does not occur and in the United States the U.S. Securities and Exchange Commission is in charge of regulating the capital market.

What is the money market?
Basically the money market is the global financial market for short-term borrowing and lending and provides short term liquid funding for the global financial system. The average amount of time that companies borrow money in a money market is about thirteen months or lower. Some of the more common types of things used in the money market are certificates of deposits, bankers' acceptance, repurchase agreements and commercial paper to name a few.

Basically what the money market consists of is banks that borrow and lend to each other, but other types of finance companies are involved in the money market. What usually happens is the finance companies fund themselves by issuing large amounts of asset backed commercial paper that is secured by the promise of eligible assets into an asset backed commercial paper conduit. Your most common examples of these are auto loans, mortgage loans, and credit card receivables.

What is the difference?
Basically the difference between the capital markets and money markets is that capital markets are for long term investments, companies are selling stocks and bonds in order to borrow money from their investors to improve their company or to purchase assets. Whereas money markets are more of a short term borrowing or lending market where banks borrow and lend between each other, as well as finance companies and everything that is borrowed is usually paid back within thirteen months.

Another difference between the two markets is what is being used to do the borrowing or lending. In the capital markets the most common thing used is stocks and bonds, whereas with the money markets the most common things used are commercial paper and certificates of deposits.

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Comments (23)

ITS FANTASTIC....VERY EFFEC... (Below threshold)
RAKHI TRIPATHI:

ITS FANTASTIC....VERY EFFECTIVE AND INFORMATIVE

THANKS

U GIVE US A NICE SUGGESTION... (Below threshold)
TAHIR RAZA:

U GIVE US A NICE SUGGESTION ABOUT DIFFERENCE IT IS VERY INFORMATIVE

THANK YOU VERY MUCH...........

Very nicely and simply put.... (Below threshold)
FQ:

Very nicely and simply put.
Thanks.

Very nicely and simply put.... (Below threshold)
FQ:

Very nicely and simply put.
Thanks.

I like where the author of ... (Below threshold)
Michael:

I like where the author of this is going however I think it can be polished.

"Another difference between the two markets is what is being used to do the borrowing or lending. In the capital markets the most common thing used is stocks and bonds, whereas with the money markets the most common things used are commercial paper and certificates of deposits."

This is inaccurate in the sense that issuing stocks is selling equity of the corporation, which is different from lending, however issuing debt instruments such as bonds or debentures is considered lending to the affect that the company uses the issues of these to create financial leverage.

The definition provided regarding Capital Markets is fairly narrow as there is a lot more to Capital Markets then just Stocks and Bonds. All a market is basically where buyers and sellers come to meet this can be a physical place or a location such as the internet. Capital is savings harnessed by a investment vehicle with the goal of increasing the amount or value over a period of time.

i like reading your article... (Below threshold)
sampson appiah:

i like reading your articles so please do send me so magazines periodically to update my knowledge.

very very simple wording an... (Below threshold)
tabussam:

very very simple wording and intresting details. i admire it.

This is a wonderful work do... (Below threshold)
Abe Alaba:

This is a wonderful work done, it is accurate and very easy to understand. keep it up! I am doing a curse on Finacial Management Bsc. in bus. Adm. I will be happy if u can help me forward some relevants concept and deffinitions. Thanks

this topic very beautifully... (Below threshold)
megha masta:

this topic very beautifully elaborated by the author,the language is very easy. it is accurate and also easy to understand.thanks

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well done

This piece is excellently p... (Below threshold)

This piece is excellently presented. I"m doin my B com Business Mgt and I find it useful!!!!!!I'm Zimbabwean.

Thanks for the useful infor... (Below threshold)
Mere Waqavonovono:

Thanks for the useful information that u have provided for me.It has help me completing my assignments.Looking forward to your favourable reply sir.

it svery helpful and provid... (Below threshold)
rajesh:

it svery helpful and provide needy kowledge,thank a lot

Very helpful actually, its ... (Below threshold)
starky:

Very helpful actually, its made me understand the topic easily from my text book.

Its fantastic thank u soo m... (Below threshold)
Royston Dias:

Its fantastic thank u soo much for givin this vital information.

Its difficult to word such ... (Below threshold)
Ng'ang'ira Mwagiru:

Its difficult to word such an article in simple terms but you nailed it! Well done! I stand informed.

i think all of the informat... (Below threshold)
wawa:

i think all of the information is very usefull for us. however to a major different is the duration for the transaction. and then for the capital market, it is under government control and for the money market it is under central bank since its more involve in certificate and paper. then another thing is return of capital in the capital market is determined by demand / supply of short term fund. for the money market, the interest rate is determined by demand / supply of capital. lastly the cpital market is have fixed capital but for the money market, it more on working capital.thanks

i think all of the informat... (Below threshold)
wawa:

i think all of the information is very usefull for us. however a major different is the duration for the transaction. and then for the capital market, it is under government control and for the money market it is under central bank since its more involve in certificate and paper. then another thing is return of capital in the capital market is determined by demand / supply of short term fund. for the money market, the interest rate is determined by demand / supply of capital. lastly the cpital market is have fixed capital but for the money market, it more on working capital.thanks

I appreciate this defi... (Below threshold)
sakhi badshah:

I appreciate this definition and differentiation between capital and money market, good examples.
thanks and keep it all.

Clearly explains the differ... (Below threshold)
Hilleni Nathanael:

Clearly explains the difference and easy to understand.

Hi friend thanks for giving... (Below threshold)
Bijendrasinh:

Hi friend thanks for giving such a wonderful n lucid information Good work Chap keep it up

Very simple wordings... Eas... (Below threshold)
Bhuvi:

Very simple wordings... Easily understandable one.. thanks...

dear authori would... (Below threshold)
Vinay Kumar Karna:

dear author

i would like to thank you for writing the differences between the two kinds of market in very very simple language but in impressive way. keep it up.

regards!

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