NECO 2004 Economics · Question 4

The main differences between money market and capital market is that money markets

Options

A.acts as advisers to investor while capital markets teleguides
B.are owned by individuals, while capital markets are owned by government
C.accepts collateral, while capital markets does not accept such
D.accepts funds while capital markets disburse fun to investors
E.provide short term loans, while capital markets provide long-term loans

Answer: E. provide short term loans, while capital markets provide long-term loans

Explanation written with AI and checked against the answer key

Step 1: Analyze the question The question asks for the main difference between the money market and the capital market.

Step 2: Explain the concept

Money market: A market for short-term funds and financial instruments, usually with maturity of up to one year. Examples: Treasury bills, commercial bills, certificates of deposit, call money.
Capital market: A market for medium- and long-term funds, usually above one year. Examples: stocks (shares), bonds, debentures. In Nigeria, the Nigerian Exchange (NGX) is the main capital market institution.

The key difference is therefore the time period (maturity) of the funds traded.

Step 3: Evaluate the options

A. Wrong. Neither market is defined by "advising" versus "teleguiding."
B. Wrong. Ownership by individuals or government is not what separates them. Both have private and public participants.
C. Wrong. Collateral can be involved in both markets, and it is not the defining difference.
D. Wrong. Both markets accept funds from savers and channel them to borrowers.
E. Correct. The money market deals in short-term loans and the capital market deals in long-term loans.

Step 4: Answer

Tip: Remember "Money = Minutes to a year; Capital = Cycles of many years." Whenever you see a question on money versus capital markets, look for the option that mentions short-term versus long-term.

AI can make mistakes. Report anything that looks wrong.