In terms of the life of securities offered, what is the difference between money and capital markets?

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The answer to this question is much more obvious when you have a proper understanding of the financial terms “money” and “capital”. Money is a more liquid asset, which can be thought of as cash flow. Money is used to purchase equipment, buy supplies, etc. So, it makes sense that you want money on hand—or at least quick access to it.

Capital, on the other hand, is financial power. This is deep wealth that is stored or invested, such as what is put into a business to start it up, and then not accessed until much later. The capital market is defined by higher volume and more longevity.

So, the answer is clear—the money market is one of financial liquidity, where funds are stored away for a short period of time. Think of a Money Market account at a bank. This is a savings account, but it is easily linked to a checking account, so that if you want to access it you can pull it out quickly. The capital market deals with stocks and bonds, long-term investments meant to sit and build wealth over time. They will be withdrawn when absolutely necessary for large scale purchases or transactions.

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Money markets and capital markets offer assets that differ in both their liquidity (the ease with which assets can be converted to cash) and their maturity (the end date of the asset).

Money markets typically offer more liquidity and shorter maturity terms. This means it is much easier to convert the asset to cash, and the asset does not last as long as capital market assets do. For example, a Certificate of Deposit (CD) is a common money market asset. CDs typically have relatively short terms (a few months to a few years), and can easily be converted to cash (although there is normally a penalty). Other common money market assets include US Treasury Notes, municipal notes, and repurchase agreements.

Capital markets typically have a longer maturity date and less liquidity. They are used by governments and corporations for long-term borrowing and lending. Some common forms of capital market assets include stocks and bonds. Capital markets are used for long-term investments and often offer greater reward than money markets.

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The major difference between these two markets is the maturity dates of the instruments involved.  The money market consists of dealings in very short term securities.  These securities can have maturity dates as short as a single day.  The securities typically mature in about three months and very rarely mature in more than a year.

By contrast, capital markets trade in long term securities.  These can be bonds that will not mature for a relatively long time like US 30 year treasury bonds.  These can also be stocks which, of course, have no maturity dates.

In terms of the life of the securities issued, then, money markets are for much shorter term securities than capital markets.

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