Which statement correctly distinguishes money markets from capital markets and gives typical instruments traded in each?

• A. Money markets trade long-term securities; examples: bonds and stocks. Capital markets trade short-term debt instruments such as Treasury bills and commercial paper.
• B. Money markets trade currencies and commodities.
• C. Money markets trade short-term debt instruments maturing in one year or less; examples: Treasury bills, commercial paper. Capital markets trade long-term securities maturing beyond one year; examples: bonds, stocks.
• D. All markets trade instruments with the same maturities.

Answer: (C)

The main idea is that the money market is about short-term funding and liquidity, while the capital market finances longer-term needs. Money markets deal with debt instruments maturing in one year or less, such as Treasury bills and commercial paper, which are designed to be highly liquid and low risk for short-term cash management. In contrast, the capital market handles longer horizons beyond one year, with instruments like bonds (long-term debt) and stocks (equity), used to finance long-term investment and growth. Trading currencies and commodities belongs to separate markets (FX and commodity markets), not the money market. Long-term securities are not money market instruments, and it isn’t correct to say all markets feature the same maturities.