Which of the following financial institutions cannot be found on the capital market of a country

Analyze the question: We need the institution that is not part of the capital market. The capital market deals with medium- and long-term funds (usually more than one year), such as shares, bonds, debentures and long-term loans.

Explain the concept:

• Money market: short-term funds (less than one year). Its institutions include commercial banks, the central bank, discount houses and acceptance houses. Instruments include treasury bills, commercial bills and certificates of deposit.
• Capital market: long-term funds. Its institutions include the stock exchange, mortgage banks, development banks, agricultural banks (long-term agricultural loans), merchant banks, insurance companies and the issuing houses.

Step-by-step check of the options:

• A. Commercial bank: The main business is short-term lending (overdrafts, short-term loans, deposits), so it is a core money market institution. Commercial banks do sometimes participate in the capital market, but they are not classed as a capital market institution.
• B. Mortgage bank: It gives long-term loans for property, so it is on the capital market.
• C. Stock exchange: This is the central institution of the capital market, where long-term securities are traded.
• D. Agricultural bank: It provides long-term loans for farming and development, so it is on the capital market.

Answer: The institution that cannot be found on the capital market is the commercial bank, which is option A.

Exam tip: Remember "Commercial = Current (short-term)". If the question asks about the money market, think commercial banks, discount houses and the central bank. If it asks about the capital market, think the stock exchange, mortgage banks, development banks and insurance companies.