Money Market and Capital Market
How the short-term money market (call money, treasury bills, commercial paper, certificates of deposit) differs from the long-term capital market for shares and bonds, who regulates each, the split between primary and secondary markets, and how open market operations link the money market to monetary policy.
What you will be able to do
- Separate money-market instruments from capital-market instruments by tenor and regulator.
- Name the main money-market instruments and who issues each.
- Explain the primary versus secondary market and the role of exchanges and depositories.
- Describe how open market operations use the government-securities market to move liquidity.
What is inside this lesson
- 1Two markets for two time horizons
- 2The money market
- 3The capital market
- 4Money market versus capital market
- 5Primary and secondary markets
- 6How the RBI uses the market to set liquidity
- 7Common confusions
- 8Quick revision
- 9Practice
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Two markets for two time horizons
A financial market moves money from those who have a surplus to those who need it. The Indian market splits by how long the money is lent for.
- The money market handles borrowing and lending for short periods — overnight to just under a year. It exists so banks, companies and the government can manage day-to-day cash gaps.
- The capital market handles funds raised for long periods — a year or more, often permanently. It exists so businesses and the government can finance investment that pays back slowly.
The two markets have different instruments, different participants and different regulators, and exam questions usually turn on placing an instrument in the right one.
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