CAPITAL MARKET AND MONEY MARKET

A capital market is distinguished from a money market in many ways. The most important distinction is that the former deals with long-term capital and the latter with short-term capital. Since there are, also certain institutions which deal in both short-term and long-term capitals, there is a certain amount of overlapping between transactions in these capitals.
Usually, a money market consists of people who borrow and lend money for periods not exceeding one year, whereas a capital market constitutes people who borrow and lend money for periods exceeding one year and they, mostly, buy and sell corporate securities. A country’s money market is hence often referred to as its market for short-term funds and the capital market as the market for long-term funds. In fact, these two markets are inter-dependent. A relative rise in the rate of interest in the money market may increase he demand in the capital market, and vice versa.