Money Market And Capital Market

The financial market is a means to transfer funds from savers to those in need of funds. But the functions performed by different financial institutions widely differ.The price of the financial instruments traded in financial markets and the need of different persons and institutions also deffer. Hence, there is a practice to classify the financial market in different ways. Money market and capital market is one of most important classification of the financial market.

The most important and mostly used classification of financial market on the basis of the nature of business or the maturity of he securities traded is money market and capital market. This classification is , therefore, based on the maturity of the financial instruments traded in the market.

Money market provides short-term credit. Here the individuals, government and institution having savings for some time come into contact with the borrowers needing short-term funds. The instruments or evidence of credit of money market matures within one year. The main function of money market is to provide working capital loans to the businesses, loans to the government and provide loans for the purchase of goods and securities for speculation.

On the contrary, capital market makes funds available for long-term investments. The long-term financial instruments are traded in the capital market, such as stock, bond, government securities etc. The maturity of the instruments traded in capital market is of more than one year period.