One key difference between the capital market and the money market is the: A. Investment horizon B. Level of liquidity C. Regulatory oversight D. Type of financial instruments traded
Question
One key difference between the capital market and the money market is the: A. Investment horizon B. Level of liquidity C. Regulatory oversight D. Type of financial instruments traded
Solution
The key difference between the capital market and the money market is the investment horizon.
In the money market, the investment horizon is short-term, typically less than a year. This market deals with highly liquid and short-term maturities. These short-term obligations are often called money market instruments and include Treasury bills, commercial paper, bankers' acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- or asset-backed securities.
On the other hand, the capital market is for long-term investments, typically over a year. It includes the stock market and the bond market. Financial regulators, like the Securities and Exchange Commission, oversees this market to ensure that investors are protected against fraud, among other duties.
So, the correct answer is A. Investment horizon.
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