Money and Capital market

Money and Capital market

Capital market,

Capital markets include the equity (stock) market and debt (bond) market. Together the money and capital markets comprise a large portion of the financial market and are often used together to manage liquidity and risks for companies, governments and individualsThe institutions operating in the capital markets access them to raise capital for long-term purposes, such as for a merger or acquisition, to expand a line of business or enter into a new business, or for other capital projects. Entities that are raising money for these long-term purposes come to one or more capital markets.The buyers, or the investors, buy the stocks or bonds of the sellers and trade them.

 If the seller, or issuer, is placing the securities on the market for the first time, then the market is known as the primary market. Conversely, if the securities have already been issued and are now being traded among buyers, this is done on the secondary market. Sellers make money off the sale in the primary market, not in the secondary market, although they do have a stake in the outcome (pricing) of their securities in the secondary market

.Modern capital markets are almost invariably hosted on computer-based electronic trading systems; most can be accessed only by entities within the financial sector or the treasury departments of governments and corporations, but some can be accessed directly by the public 

 

Money Market

The money market is often accessed alongside the capital markets. While investors are willing to take on more risk and have patience to invest in capital markets, money markets are a good place to "park" funds that are needed in a shorter time period - usually one year or less. 

The financial instruments used in capital markets include stocks and bonds, but the instruments used in the money markets include deposits, collateral loans, acceptances and bills of exchange. Institutions operating in money markets are central banks, commercial banks and acceptance houses, among others. Liquidity is often the main purpose for accessing money markets.

 When short-term debt is issued, it is often for the purpose of covering operating expenses or working capital for a company or government and not for capital improvements or large scale projects.

Difference between money markets and capital markets

1.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

2.Funds borrowed from the money markets are typically used for general operating expenses, to cover brief periods of illiquidity 

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.