Common Stock and Preferred Stock

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Money market refers to the process in which all the financial institutions such as banks deals in short term loan in different forms such as treasury bills and commercial bills. Short term loan means the duration of maturity is of one year or less than that. We need to be clear that equity instrument i.e common or preferred stocks both are not traded in money market. Similarly, we need to keep one thing in mind that money market is a intangible market where we deal over the phone or company, we just don't enter the building of a company. Likewise, Capital market refers to the process in which all the financial institutions deals in long term debt in different forms such as debentures, public deposits and shares. Long term debt means the duration of maturity is more than one year. The amount in capital market is paid when the company winds up. But the investors have the authority or right to sell if he/she needs money, it is flexible. Rate of interest in money market is decided by the central market i.e Reserve bank of India. But in the case of capital market the interest and dividends rates are determined by the demand and supply of securities and sensex condition of stock market. The risk associated with money market is less in compared to capital market. Since the maturity is one year or less than that so the chances of being default is less. But in case of capital market the risk varies from degree and nature. Likewise the basic role of both the markets are different, money market is basically for liquidity adjustment and capital market is basically putting capital for long run and productive employment.
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