Capital Market

The market dealing in long-term finance is called the capital market. The following are the main features of the capital market.

1. The maturity period of financial instruments of the capital market is more than one year.
2. There is no close relation between the central bank and the capital market.
3. The degree of risk is high in it because of the long maturity period of credit or financial instruments.
4. Its main instruments are debenture, equities or shares, and government securities.
5. It meets the long-term credit needs of the industrialists and provides fixed capital to buy land, machinery, etc.
6. Its important institutions are stock exchanges, development banks, finance companies, insurance companies, provident funds, investment companies, etc.

Money Market

The market where short-term financial instruments are traded is called the money market. The following are the main features of money market:

1. The maturity period of its financial instruments is for the short-term generally for less than one year.
2. Its main instruments are treasury bills, commercial papers, certificates of deposit, etc.
3. It is closely and directly linked with the central bank of the country.
4. The degree of risk is less in it because the maturity period od credit instruments are one year or less.
5. Its important institutions are commercial banks, bill brokers, non-bank financial institutions, etc.
6. It meets the short-term credit needs of the business. It provides working capital to the industrialists.