Economics · Financial Markets
Which of the following statements provides the deepest conceptual distinction between the purpose of the Money Market and the Capital Market in the overall financial ecosystem?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Money Market transactions are restricted entirely to commercial banks, whereas Capital Market transactions are exclusively open to retail investors and corporate houses.
- 2Money Market instruments carry high default risk due to their short tenor, while Capital Market instruments are inherently risk-free due to stringent SEBI guidelines.
- 3The Money Market facilitates the borrowing and lending of short-term funds for liquidity management, while the Capital Market is dedicated to raising and allocating long-term capital for investment and capacity expansion.✓
- 4The Money Market primarily deals with debt instruments regulated by the RBI, while the Capital Market exclusively deals with equity instruments regulated by SEBI.
Correct answer
The Money Market facilitates the borrowing and lending of short-term funds for liquidity management, while the Capital Market is dedicated to raising and allocating long-term capital for investment and capacity expansion.
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