ACCA Financial Management (F9) Certification Practice Exam

What distinguishes capital markets from money markets?

1. Duration of financing

2. Types of instruments traded

3. Regulatory frameworks

4. Types of investors

The correct answer is: Duration of financing

In the context of distinguishing between capital markets and money markets, the duration of financing is a key factor. Capital markets are characterized by long-term financing, typically involving instruments with maturities greater than one year, such as stocks and bonds. These markets are used by companies and governments to raise funds for longer-term investments and projects. On the other hand, money markets focus on short-term financing, which generally involves instruments with maturities of one year or less. These instruments include treasury bills, commercial paper, and certificates of deposit, which are used for managing short-term liquidity needs and cash management by entities. Therefore, the primary distinction based on the duration of the financing reflects the differing purposes and risks associated with the transactions in these two types of markets. The capital market supports long-term funding goals, which can enhance growth and expansion, while the money market is essential for maintaining liquidity and managing immediate financial obligations.