Key Points
Key Points: Money Market
- Money market is for short-term funds and near money instruments.
- All money market instruments have maturity of one year or less.
- Instruments are highly liquid, less risky and easily tradable.
- Key participants include RBI, banks, NBFCs, governments, big companies and mutual funds.
- Main instruments: Treasury bills, call/notice money, commercial papers, commercial bills and certificates of deposit.
- Call rate affects demand for other money market instruments through an inverse relationship.
Distinction Between Capital Market and Money Market
| Basis | Capital Market | Money Market |
|---|---|---|
| Time span | Long- and medium-term securities with maturity more than one year. | Short-term instruments with maturity up to one year. |
| Liquidity | Tradable on stock exchanges; less liquid than money market instruments. | Highly liquid due to an active ready market. |
| Returns | Higher potential returns over a longer period. | Lower expected returns because of shorter maturity. |
| Instruments | Equity shares, preference shares, bonds, debentures. | Commercial papers, treasury bills, certificates of deposit. |
| Risk | Relatively risky for both return and principal repayment. | Relatively safe, issued for short duration by sound entities. |
Key Points: Money Market
- Money market is for short-term funds and near money instruments.
- All money market instruments have maturity of one year or less.
- Instruments are highly liquid, less risky and easily tradable.
- Key participants include RBI, banks, NBFCs, governments, big companies and mutual funds.
- Main instruments: Treasury bills, call/notice money, commercial papers, commercial bills and certificates of deposit.
- Call rate affects demand for other money market instruments through an inverse relationship.
