Financial Markets
A financial market is a mechanism that deals with short-term and long-term lending borrowing of financial instruments. The financial market carries the transaction of money, cheque, treasury bills, government securities, etc. This market is broadly classified into two categories namely money and capital market.
Money Market:
The money market is a mechanism through which short-term amounts are raised and provided in the trade, commerce, and industrial sector. In this market, lending and borrowing take place for less than one year time period. So, the majority period of credit instruments in this market is less than one year. The important credit instruments of this market are treasury bills, national savings, papers, commercial bills, etc.
Capital Market:
Capital market is a mechanism through which long-term funds are raised and provided in the business sector. In this market, lending and borrowing take place for more than one year time period. The major organizations of the capital market are stock exchange centers, insurance companies, finance companies, commercial banks, etc. In Nepal, Nepal Stock Exchange (NEPSE) in Nepal is the only organized capital market to manage long-term securities.
Differences between Money and Capital Market:
| Basis of Differences | Money Market | Capital Market |
| Definition | Money Market is a mechanism through which short-term funds are raised and provided in the trade, commerce, and industrial sector. | Capital market is a mechanism through which long-term funds are raised and provided in business sector. |
| Maturity Period | The maturity period of credit instruments is less than one year. | The maturity period of credit instruments of this market is more than one year. |
| Finance | This market provides short-term funds to the business sector. | This Market provides long-term funds to the business sector. |
| Credit Instruments | Treasury bills, national savings papers, commercial bills, etc. | Shares, bonds, debentures, equities, and so on. |
| Risk | Capital investment in this market is less risky than in capital market. | Capital investment in this market is riskier than in money market. |
