Questions and Answers
The capital market is where corporations and governments issue financial assets such as bonds and shares to meet their short-term financial needs.
False
The money market is associated with short-dated financial assets, while the capital market deals with long-dated or undated securities.
True
The money market is mainly used by the central government to raise finance through new issues of government bonds.
False
The capital market is primarily used for raising finance by the private sector through new issues of shares and corporate bonds.
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The capital market and money market both provide short-term financing options for corporations and governments.
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Study Notes
Capital Market: Definition and Instruments
- The capital market is a platform where corporations and governments issue financial assets to meet their medium to long-term financial needs.
- Financial assets issued in the capital market include bonds and shares.
Difference between Money Market and Capital Market
- The capital market provides medium to long-term financing, whereas the money market provides short-term financing.
- The money market is associated with short-dated financial assets, whereas the capital market issues and trades long-dated or undated securities.
Instruments in the Capital Market
- Private sector raises finance through new issues of shares and corporate bonds.
- Central government raises finance through new issues of government bonds (also known as gilts in the UK).
Key Features of the Capital Market
- Issues long-dated or undated financial assets.
- Meets medium to long-term financial needs of corporations and governments.
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