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compensate the higher risk. Risk is slightly lower in Money market hence the maturity
of one year or less gives little time for a default to occur.

4. Purpose of Loan:

In terms of financing purposes, the money market meets the short-term credit needs

of business specially to provide working capital to cover short term operating cost for
the business but, the capital market, on the other hand, caters the long-term credit

needs of the industrialists and provides fixed capital to buy land, machinery, etc.

Table 2.4: The differences between Money Market and Capital Market.

Dimension Money Market Capital Market

Maturity Period Short-term financing Long-term financing
(one year or less)

Credit Instrument T-bill, Bankers’ Stock, Share,
Acceptance, Debenture, Bond
Certificate of Deposit,
Repo & Reverse, etc.
Risk and Return Low High
Exposure
Purpose of Loan Financing for working To finance fixed capital
capital

2.3 INITIAL PUBLIC OFFERING (IPO)

Initial Public Offerings (IPOs) is referring to the process of selling stock by a private
company to the public at the first time. Normally, IPOs are often issued by smaller or

younger companies seeking for additional capital to expand their business. In investment,
IPO also known as ‘going public’.

In an IPO, the issuer obtains the assistance of an underwriting firm which is investment
bank, that helps the company to determine what type of security to issue (common or

preferred).

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