A  capital market differs from the money market in that in the former ________?

Step 1: Analyze the question The question asks how the capital market differs from the money market. The key idea is the type of funds traded in each market.

Step 2: Explain the concept

• Money market: deals in short-term funds, usually up to one year. Examples are treasury bills, commercial bills, certificates of deposit and call money.
• Capital market: deals in medium- and long-term funds, usually over one year. Examples are stocks and shares, bonds, debentures and long-term loans. In Nigeria, the Nigerian Exchange (NGX) is the main capital market institution.

Step 3: Evaluate the options

• A. The percentage of interest charged is more: Not a defining feature. Interest rates vary with risk and time, and this doesn't distinguish the two markets.
• B. Loan sought is long term: Correct. The time period of the funds is the basic difference.
• C. Loan repayment is guaranteed: No market guarantees repayment. Investments in either market carry some risk.
• D. Loan sought is short-term: This describes the money market, not the capital market.

Step 4: Answer The capital market differs from the money market in that in the capital market, the loan sought is long term.

Tip: Remember M = Minutes to a year (short term) and C = Come back later (long term). When a question asks you to distinguish the two markets, look first for the option about duration.