Difference Between a Money Market & a Capital Market

For investors there is a significant difference between a money market and a capital market. A capital market is one in which equities and bonds are traded, and a money market is where short-term debt obligations, known as commercial paper and certificates of deposit (CDs), are traded.

Significance

Capital markets and money markets are an integral part of the modern capitalist financial system.

Function

Money markets and capital markets ensure that businesses and governments have the capital they need to operate or grow.

Features of a Capital Market

Capital markets are used for businesses and governments to obtain access to long-term funds. nvestors in capital markets take on greater risk and earn greater returns.

Features of a Money Market

Money markets are used by governments and businesses that wish to raise short-term funds. Investors in money markets take on less risk but earn lower returns.

Key Differences

The main differences between money markets and capital markets are what are traded and for how long. Money markets trade CDs and commercial paper over a short time horizon, while capital markets trade stocks and bonds over a long time horizon.

References

• The difference between capital markets and money markets