Final answer:
The capital market is where long-term debt instruments like bonds and debentures are traded, addressing the needs for loans lasting more than one year.
Step-by-step explanation:
The capital market encompasses the trading of long-term debt instruments such as bonds and debentures, where money is loaned for periods longer than one year. This market plays a crucial role in facilitating the transformation of the inflow of funds from various suppliers of financial capital, like households and savers, into the larger sums needed by businesses and governments. Bonds, debentures, and other long-term financial investments are crucial components of the capital market, providing avenues for both individuals and institutions to invest and obtain potential returns over extended periods.
On the contrary, the money market deals with short-term debt instruments where money is typically loaned for less than one year. While the capital market helps bridge the gap between small savings and large investments through instruments like government bonds, IRAs, and large certificates of deposit (CDs), the money market uses instruments like Treasury bills, commercial paper, and short-term CDs for quicker financial exchanges. Understanding the distinction between capital and money markets is fundamental for investors, businesses, and governments to manage their long and short-term financial needs.