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CSEET · Economic and Business Environment · Indian Financial Markets

Which one of the following correctly distinguishes the money market from the capital market in India?

The money market deals in short-term funds with maturity up to one year, such as treasury bills and call money, whereas the capital market deals in long-term securities like equity shares and debentures. The distinction rests mainly on the maturity of the instruments traded.

  1. AThe money market deals in long-term securities such as equity shares and debentures, while the capital market deals in short-term funds
  2. BThe money market deals in short-term funds with maturity up to one year, while the capital market deals in long-term securitiesCorrect
  3. CBoth markets deal only in securities with maturity above one year
  4. DThe money market is meant only for retail investors, while the capital market is meant only for banks

Explanation

The money market handles short-term borrowing and lending, with instruments of up to one year such as treasury bills, commercial paper and call money. The capital market handles long-term instruments like shares and debentures. The first option reverses the two markets.

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