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Assignment on

Comparison between Money market and Capital Market

xth Semester

By

Faizan Akhtar MBAP-F13-1X

Faisal Saeed MBAP-F13-1X

Hina Shaheen MBAP-F13-1X

Ammara Ch MBAP-F13-1X

MASTERS IN BUSINESS ADMINISTRATION

Faculty of Management Sciences

THE SUPERIOR UNIVERSITY LAHORE

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Money Market:

The short term debts and securities sold on the money markets which are known as money market

instruments have maturities ranging from one day to one year and are extremely liquid. Treasury

bills, federal agency notes, certificates of deposit, commercial paper, bankers' acceptances, and

repurchase agreements are examples of instruments. The suppliers of funds for money market

instruments are institutions and individuals with a preference for the highest liquidity and the lowest

risk.

Money Market is unsystematic market and so the trading is done off exchange, i.e. Over The Counter

between two parties by using phones, email, fax, online, etc. It plays an important role in the

circulation of short term funds in the economy. It helps the industries to fulfill their working

capital requirement.

Capital Market:

A type of financial market where the government or company securities are created and traded for

the purpose of raising long term finance to meet the capital requirement is known as Capital Market.

The securities which are traded includes stocks, bonds, debentures, euro issues, etc. whose maturity

period is not limited up to one year or sometimes the securities are irredeemable (no maturity). The

market plays a revolutionary role in circulating the capital in the economy between the suppliers

of money and the users. The Capital Market works under full control of Securities and Exchange

Board to protect the interest of the investors.

The Capital Market includes both dealer market and auction market. It is broadly divided into two

major categories: Primary Market and Secondary Market.

Primary Market: A market where fresh securities are offered to the public for subscription

is known as Primary Market.

Secondary Market: A market where already issued securities are traded among investors is

known as Secondary Market.

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Basis for Comparison

Money Market Capital Market

Definition Is a component of the financial markets where short-term borrowing takes place.

Is a component of financial markets where long-term borrowing takes place.

Time Period

The money market make an agreement for borrowing and lending of short term funds which shows time period is one year or less than one year.

The capital market compact in borrowing and lending of long term funding which means the time period is more than one year.

Credit Instruments

Certificate of deposit, Repurchase agreements, Commercial paper, Federal funds, Municipal notes, Treasury bills, Money funds, Foreign Exchange Swaps, short-lived mortgage, Eurodollar deposit, and asset-backed securities.

Stocks, Shares, Debentures, bonds, Securities of the Government.

Nature of Credit

Instruments

Homogenous. A lot of variety causes problems for investors.

Heterogeneous. A lot of varieties are required.

Purpose of Loan

Short-term credit required for small investments.

Long-term credit required to establish business, expand business or purchase fixed assets.

Basic Role Liquidity adjustment Putting capital to work

Institutions Central banks, Commercial banks, Acceptance houses, Nonbank financial institutions, Bill brokers, etc.

Stock exchanges, Commercial banks and Nonbank institutions, such as Insurance Companies, Mortgage Banks, Building Societies, etc.

Risk In money market, risk factor is very small because time period is less than one year is given so defaulter have less time to default that's way the risk is minimized.

In capital market, the risk is more as compare to in money market. the reason behind this is the time period. the maturity of more than one year provides more time for default. but in capital market risk is differs both in nature and degree.

Market Regulation

Commercial banks are closely regulated to prevent occurrence of a liquidity crisis.

Institutions are regulated to keep them from defrauding customers.

Relation with

Central Bank

Closely related to the central banks of the country.

Indirectly related with central banks and feels fluctuations depending on the policies of central banks.

Return on Investment

There is return on investment is less. On the other hand comparatively high.

Merit Increases liquidity of funds in the economy.

Mobilization of Savings in the economy.

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Conclusion:

The main aim of the financial market is to channelize the money between parties in which Money

Market and Capital Market helps by taking surplus money from the lenders and giving them to the

borrower who needs it. Millions of transactions take place around the world on a daily basis.

Both of them work for the betterment of the world economy. They fulfill the long term and short

term capital requirements of the individual, firms, corporate and government. They provide good

returns which encourages investments.