Difference between capital market and money market:

Ans: The main difference between a capital market and a money market lies in their purpose, risk level, and investment duration.

Purpose and Investment Duration:

A money market focuses on short-term liquidity needs, providing a platform for borrowing and lending funds for a short duration, typically less than a year. On the other hand, a capital market caters to long-term investment requirements, facilitating the trading of securities like stocks, bonds, and mutual funds with maturities exceeding one-year.

Risk Level and Returns:

Money markets are generally considered less risky, offering lower returns due to the shorter investment duration. In contrast, capital markets come with higher risk and potential for greater returns, as investors have the opportunity to grow their wealth over a longer period ¹.

Key Characteristics:

1. Money Market:

    - Short-term investments (less than a year)

    - Low risk, low returns

    - High liquidity

    - Instruments: Treasury bills, commercial papers, certificates of deposit (CDs)

2. Capital Market:

    - Long-term investments (exceeding a year)

    - Higher risk, potential for higher returns

    - Less liquid

    - Instruments: Stocks, bonds, mutual funds, derivatives

In summary, money markets are ideal for short-term, low-risk investments, while capital markets are suited for long-term investments with higher potential returns, but also greater risk.