Difference Between Money Markets and Capital Markets

Money markets

Short borrowing and lending of funds are further conducted in money markets. Governments, banks, and corporations are the borrowers while particular retail investors, governments, corporations, insurance companies and pension funds are investors. Money markets can either be international or short-term money markets (Gordon & Natarajan, 2009). International markets are Eurocurrency markets. In a domestic market, funds are lent or borrowed in the domestic currency; while in the international markets, money market funds are borrowed in different currencies. Securities in the money market are traded in large amounts especially considering the value of money. Investors as such are discouraging in the sense that the amount of funds traded are enormous. The money market is a dealer market where by invest trade on securities form their specific accounts.

Most money markets deal in purchase and lending agreements of securities, treasury bills, commercial paper among others. The money markets form a large part of the financial system of the United States. Regulatory laws control how the securities are traded in different market scenarios. Bank deposits are not part of securities in the money market. Interbank loans are not secured and are given mostly due to assurances or creditworthiness of an individual or business. Commercial papers form part of the promissory notes. Money markets thus offer securities and funds in the short term while capital markets dwell on securities in the long term (Saunders, 2014).

Capital markets

Capital markets are markets where sellers and buyers focus on the sale and purchases of financial securities. Companies mostly get money from the investors, which is used in the long term especially in the business increase in productivity and profit making ventures. Companies, therefore, get surplus funds from investors and put them into productive use. Secondary and primary markets form part of the capital markets. The capital markets have particular section, which deals in different securities, which mostly include bonds and stocks, traded in the bond market and stock market respectively (Choudhry, 2010). Capitals markets are thus areas where different individuals who need additional capital seek out those who have funds in excess and wish to invest them. The risk in these markets is further diversified, shared and distributed. As such, people venture into various attractive investments in a risk-taking venture where they can benefit or miss their investments. As such, brokers greatly help in the secondary market in advising the investors on what stocks they should buy and giving them more information regularly for them to make important decisions. The brokers are further given commission by the investors as they deal with their stocks.


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