Advertisements
Advertisements
Questions
Differentiate between the Money Market and Capital Market.
State the difference between 'Capital Market' and 'Money Market' on any five basis.
Differentiate between 'Capital Market' and 'Money Market' on the basis of the following:
- Participants
- Instruments
- Expected Return
- Safety
- Duration
Distinguish between ‘Capital Market’ and 'Money Market’ on the basis of following:
- Duration
- Liquidity
- Safety
- Investment Outlay
Distinguish between ‘Capital Market’ and 'Money Market’ on the basis of following:
- Participants
- Safety
- Investment Outlay
- Expected Return
Distinguish between ‘Capital Market’ and ‘Money Market' on the basis of:
- Participants
- Investment Outlay
- Expected Return
Distinguish between ‘Capital Market’ and ‘Money Market’ on the basis of:
- Instruments
- Liquidity
- Safety
Solution
| S. No. | Basis | Money Market | Capital Market |
| 1. | Meaning | It is a component of the financial market where short-term borrowing and lending takes place. | It is a component of the financial market where long-term borrowing and lending takes place. |
| 2. | Participants | Participation in the money market is, by and large undertaken by institutional participants such as the RBI, banks, financial institutions, and finance companies. | The participants in the capital market are financial institutions, banks, corporate entities, foreign investors, and ordinary retail investors from members of the public. |
| 3. | Instruments | The main instruments traded in the money market are short-term debt instruments such as T-bills, trade bill reports, commercial paper, and certificates of deposit. | The main instruments traded in the capital market are equity shares, debentures, bonds, preference shares, etc. |
| 4. | Duration | Money market instruments have a maximum tenure of one year and may even be issued for a single day. | The capital market deals in medium and long-term securities such as equity shares and debentures. |
| 5. | Liquidity | Money market instruments, on the other hand, enjoy a higher degree of liquidity as there is a formal arrangement for this. The Discount Finance House of India (DFHI) has been established with the specific objective of providing a ready market for money market instruments. | Capital market securities are considered liquid investments because they are marketable on the stock exchanges. However, a share may not be actively traded, i.e. it may not easily find a buyer. |
| 6. | Safety | The money market is generally much safer, with a minimum risk of default. This is due to the shorter duration of investing and also to the financial soundness of the issuers, which primarily are the government, banks, and highly rated companies. | Capital market instruments are riskier both with respect to returns and principal repayment. Issuing companies may fail to perform as per projections, and promoters may defraud investors. |
| 7. | Expected return | Investor returns on money market investments are typically lower than those on capital markets. | Investor returns on capital market investments are typically higher than those on money market investments. |
| 8. | Investment Outlay | does not demand a significant financial investment. | Does not demand a significant financial investment. |
| 9. | Institutions | Participants in the market are central banks, commercial banks, acceptance houses, non-bank financial institutions, bill brokers, etc. | Stock exchanges, commercial banks, non-bank institutions, financial intermediaries, etc., are the participants in the market. |
| 10. | Risk | Risk factor is very low because the maturity period of the instruments is less than one year. | Risk is higher as compared to the money market as instruments have a long maturity period. |
| 11. | Purpose of borrowing | Funds are borrowed to meet working capital requirements or for small investments. | Long-term funds help to establish a new business, expand or diversify it, or purchase fixed assets. |
| 12. | Role in the economy | This market increases the liquidity of funds in the economy. | This market helps in the mobilisation of savings in the economy |
| 13. | Functions | The money market exists as a mechanism of liquidity adjustments, i.e. a link between the depositors and borrowers. | The capital market functions as a link between investors and entrepreneurs. |
Notes
Students should refer to the answer according to their questions.
APPEARS IN
RELATED QUESTIONS
Answer the following question:
An investor wanted to incest RS. 20,000 in Treasury Bills for a period of 91 days. When he approached the Reserve Bank of India for this purpose he came to know that it was not possible.
Identify the reason why the investor could not invest in the Treasury Bill.
Differentiate between 'Primary Market' and 'Secondary Market' on any five basis.
Explain the recent Capital Market reforms in India.
Answer each of these questions in about fifteen words:
State how sources can broadly be classified into two major categories.
Answer each of these questions in about fifteen words:
Which sources provide the supply for long-term funds?
Answer each of these questions in about fifteen words:
Name the sources of demand for capital comes from.
Answer each of these questions in about fifteen words:
Define capital market.
Answer each of these questions in about fifteen words:
Name the two players in the capital market.
Answer each of these questions in about fifteen words
identify the method of raising additional finance from existing shareholders by offering securities to them on pro-rata basis.
Answer each of these questions in about fifteen words
What is Right Issue?
Answer each of these questions in about fifteen words:
What is a secondary market?
Answer each of these questions in about fifteen words:
What is the need of secondary market?
Answer each of these questions in about fifteen words:
In what forms company can raise capital through primary market?
Answer each of these questions in about one hundred and fifty words:
State the nature of money market. Who are the major participants in the money market?
Answer each of these questions in about one hundred and fifty words:
Explain how capital markets are the most important source of raising finance for an entrepreneur.
Answer each of these questions in about one hundred and fifty words:
What do you understand by capital market? How can the capital market in India be broadly classified into different categories?
Answer each of these questions in about one hundred and fifty words:
Write down the sectors of organized and unorganized market.
Answer each of these questions in about one hundred and fifty words:
What is meant by primary market? Briefly explain the concept of ‘Right Issue for existing companies’.
Answer each of these questions in about two hundred and fifty words:
“An entrepreneur can raise the required capital in the primary market.” Explain the various methods of raising the funds in the primary market by an entrepreneur.
High Order Thinking Skills
Why primary market is also known as new issue market? Give one reason.
Answer each of these questions in about fifteen words:
What is a secondary capital market?
Complete the correlation:
Money market : Short-term funds :: ______ : Long-term funds
Assertion and Reasoning:
- Assertion (A): Regional stock exchanges have witnessed a sharp decline in the volume of trade.
- Reasoning (R): Investors prefer to trade in securities listed in premier stock exchanges like BSE, NSE, etc.
Primary market is also known as new issue market.
Explain the following term/concept.
Secondary market
Justify the following statement.
Capital market is useful for corporate sector.
Complete the correlation.
Primary market: New issues launched to raise capital:: ______: Old issues through stock market.
Policy that aims at managing the quantity of money in order to meet the requirements of different sectors of the economy and to increase the pace of economic growth –
Assertion (A): Stock exchange is an important constituent of the money market.
Reasoning (R): Stock exchange is an organization in which stocks, bonds, commodities etc. are traded.
Identify & explain the concept from the given illustration.
Kerala-based company K Jewellers intends to raise ₹1000 crore by fresh issuance of shares.
Bank Rate means.
Capital market do not provide _________
What is Capital Market?
Primary and secondary markets
To be listed on OTCEI, the minimum capital requirement for a company is
What are the methods of floatation in Primary Market?
The most commonly used method for raising funds in primary market is ______.
Full form of NSDL is;
Which market directly contributes to capital formation?
Read the following text and answer the following question on the basis of the same:
ISQM SOLAR Limited is searching for options to raise Rs. 20,000 crores from the primary market for diversification and modernisation of existing projects. It hired the services of a renowned financial consultancy firm, DHAN LAXMI Pvr LTD. to suggest options for the same. DHAN LAXMI PVI LTD. suggested a list of options to the Board of Directors of the company. It was decided that for the immediate requirement of Rs. 1,500 crores, the company will give a privilege to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. Rs. 4,500 crores would be raised by allotment of securities to a consortium of financial institutions, instead of inviting subscription from the public by making a direct appeal to investors to raise capital. It was further decided to raise capital to the tune of Rs. 6,000 crores through an issuing house. All these options were accepted by the Board of Directors. The Board further decided to raise Rs. 8,000 crores through the online system of the stock exchange by entering into an agreement with the exchange.
Identify the method of floatation of new issues in the primary market, not taken up by ISQM SOLAR LTD.:
Read the following text and answer the following question on the basis of the same:
ISQM SOLAR Limited is searching for options to raise Rs. 20,000 crores from the primary market for diversification and modernisation of existing projects. It hired the services of a renowned financial consultancy firm, DHAN LAXMI Pvr LTD. to suggest options for the same. DHAN LAXMI PVI LTD. suggested a list of options to the Board of Directors of the company. It was decided that for the immediate requirement of Rs. 1,500 crores, the company will give a privilege to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. Rs. 4,500 crores would be raised by allotment of securities to a consortium of financial institutions, instead of inviting subscription from the public by making a direct appeal to investors to raise capital. It was further decided to raise capital to the tune of Rs. 6,000 crores through an issuing house. All these options were accepted by the Board of Directors. The Board further decided to raise Rs. 8,000 crores through the online system of the stock exchange by entering into an agreement with the exchange.
"Rs. 4,500 crores would be raised by allotment of securities to a consortium of financial institutions, instead of inviting subscription from the public by making a direct appeal to investors to raise capital."
Identify the method of floatation of new issues in the primary market being discussed above, which the company has decided to use:
Read the following text and answer the following question on the basis of the same:
ISQM SOLAR Limited is searching for options to raise Rs. 20,000 crores from the primary market for diversification and modernisation of existing projects. It hired the services of a renowned financial consultancy firm, DHAN LAXMI Pvr LTD. to suggest options for the same. DHAN LAXMI PVI LTD. suggested a list of options to the Board of Directors of the company. It was decided that for the immediate requirement of Rs. 1,500 crores, the company will give a privilege to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. Rs. 4,500 crores would be raised by allotment of securities to a consortium of financial institutions, instead of inviting subscription from the public by making a direct appeal to investors to raise capital. It was further decided to raise capital to the tune of Rs. 6,000 crores through an issuing house. All these options were accepted by the Board of Directors. The Board further decided to raise Rs. 8,000 crores through the online system of the stock exchange by entering into an agreement with the exchange.
Identify the reason which has made the firm raise funds from the institutional investors :
Read the following text and answer the following question on the basis of the same:
ISQM SOLAR Limited is searching for options to raise Rs. 20,000 crores from the primary market for diversification and modernisation of existing projects. It hired the services of a renowned financial consultancy firm, DHAN LAXMI Pvr LTD. to suggest options for the same. DHAN LAXMI PVI LTD. suggested a list of options to the Board of Directors of the company. It was decided that for the immediate requirement of Rs. 1,500 crores, the company will give a privilege to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. Rs. 4,500 crores would be raised by allotment of securities to a consortium of financial institutions, instead of inviting subscription from the public by making a direct appeal to investors to raise capital. It was further decided to raise capital to the tune of Rs. 6,000 crores through an issuing house. All these options were accepted by the Board of Directors. The Board further decided to raise Rs. 8,000 crores through the online system of the stock exchange by entering into an agreement with the exchange.
How much money was raised by the company through E-IPO's?
Who plays a very vital role as a financial intermediary?
‘While there are benefits of going public as a source of finance for a company, it also means additional obligations'.
Analyse and justify the statement.
Which of the following statements is incorrect?
Identify the place where transaction happens in shares or debentures subsequent to its primary offering.
Which among the following is NOT a method of raising the required capital in the primary market?
In its vital role as a financial intermediary, capital markets satisfies the tastes of the savers and the need of the investors. Evaluate the given statement.
Complete the correlation:
Money market : Short term funds :: ______ : Long term funds.
State the following statements are True or False.
Capital market is the market for long-term funds.
Complete the correlation :
Money market: Short term funds:: ______ : Long term funds
Complete the correlation:
Money market : Short term funds :: ______ : Long term funds.
Complete the correlation:
Money market : Short-term funds :: ______ : Long-term funds.
Complete the correlation:
Money market : Short term funds :: _____ : Long term funds.
Complete the correlation:
Money market : Short term funds :: ______ : Long term funds
Complete the correlation.
Money market : Short term funds :: ______: Long term funds
Complete the correlation:
Money market : Short term funds :: ______ Long term funds.
Complete the correlation.
Money market : Short term funds :: ______ : Long term funds
Complete the correlation:
Money market : Short term funds :: ______ : Long term funds
