Compare and contrast Money Markets and Capital Markets. In your description list the most financial instruments...

Compare and contrast Money Markets and Capital Markets. In your description list the most financial instruments trading on each market. Make sure that you always indicate what types of investors prefer what type of markets, assets and explain why?

Expert Solution

Differences between Money Markets and Capital Markets:
1. The securities which mature within 1 year is money market and securities which mature after long period more than 1 year are traded in capital market.
2. Money market securities are more liquid than capital market securities.
3. Since maturity in money market is less risk involved is very less.but risk is higher in capital market.
4. Treasury bills, commercial papers , bills of exchange are most traded in money markets and bonds, shares are traded in capital market.

Risk averse investors usually buy treasury bills, government bonds because risk of default is non existent, liquidity is higher, However maturity and interest rate risk make government bonds more risky than t-bills .
Risk loving or high return demanding investors invest in stock markets because the returns are high as risk is high. Here the price volatility is very high , less liquid than money market instruments and government bonds.

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