Capital Market - Difference Between Money Markets and Capital Markets

Difference Between Money Markets and Capital Markets

Finance
Financial markets Bond market Commodity market Derivatives market Foreign exchange market Money market Over the counter Private equity Real estate Spot market Stock market Financial market participants: Investor and speculator Institutional and retail
Financial instruments Cash: Deposit Derivative Exotic option Futures contract Loan Option (call or put) Security Stock Time deposit or certificate of deposit
Corporate finance Accountancy Audit Capital budgeting Credit rating agency Financial risk management Financial statement Leveraged buyout Mergers and acquisitions Structured finance Venture capital
Personal finance Credit and debt Employment contract Financial planning Retirement Student financial aid in the United States
Public finance Government spending: Government final consumption expenditure Government operations Redistribution of wealth Transfer payment Government revenue: Taxation Deficit spending Government budget Government budget deficit Government debt Non-tax revenue Warrant of payment
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Economic history History of private equity and venture capital Recession Stock market bubble Stock market crash

The Money markets are used for the raising of short term finance, sometimes for loans that are expected to be paid back as early as overnight. Whereas the Capital markets are used for the raising of long term finance, such as the purchase of shares, or for loans that are not expected to be fully paid back for at least a year.

Funds borrowed from the money markets are typically used for general operating expenses, to cover brief periods of illiquidity. For example a company may have inbound payments from customers that have not yet cleared, but may wish to immediately pay out cash for its payroll. When a company borrows from the primary capital markets, often the purpose is to invest in additional physical capital goods, which will be used to help increase its income. It can take many months or years before the investment generates sufficient return to pay back its cost, and hence the finance is long term.

Together, money markets and capital markets form the financial markets as the term is narrowly understood.

Read more about this topic: Capital Market

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