Before going to explore the meaning and functions of the money market one should understand the difference between money market and capital market.

Money Market vs. Capital Market

Capital Market

1. Term of Finance


Provides short-term finance Provides long-term finance. .

(Usually up to one year).

2. Nature of Requirements Provides for the requirements of working Provides for the requirements of fixed capital.

3. Bills of Exchange, Treasury Bills, Call Shares, Debentures of industrial concerns, Loans, Bills, Short-term Government Secu- Bonds and other long-term securities of reties, Commercial paper, Certificate of Government.


4. Assistance

Help solving liquidity problems of banks Assist in sourcing long-term financial needs as well as Government of Industry and Government.

5. Main Institutions

Foreign banks, Development Financial in- Investment Banks like IDBI, IFCs, SFCs, situations like IDBI, ICICI, IFC, etc. Central ICICI, Insurance Companies, Financial Ins- Bank, Commercial Banks, Co-operative situations, etc. Banks, etc.


These two markets work together and are possibly interdependent. Some institutions like commercial banks operate in both markets. Basically, money market and capital market are the segments of one market called market of credit.