ABSTRACT
The money and capital markets are the market on which promissory notes are exchanged for money. If companies, consumers or the government need money, they approach the money and capital markets. This chapter deals with the way these markets work and will also deals with the difference between the money market and the capital market. If a company needs money for a short period only, it will approach the money market. The chapter examines the factors that determine the money market or short-term interest rate, and also deals with the capital market and the factors that determine the capital market or long-term interest rate. The main function of the money and capital markets is to bring together the deficits and surpluses of liquid assets within an economy for the purpose of creating a balance between them. The interest rate insures that there is a balance on the capital market between demand and supply.
