Final answer:
The financial markets where equity and debt instruments with maturities of less than one year are traded are called money markets. These are different from capital markets, which deal with longer-term securities. The main purpose of these markets is to facilitate the movement of funds between investors and entities seeking capital.
Step-by-step explanation:
Financial markets in which equity and debt instruments with maturities less than one year are traded are known as money markets. These include instruments such as treasury bills, commercial paper, and short-term government securities that are used typically by investors to loan money for short-term periods. On the other hand, capital markets are where money is loaned for periods longer than one year and can include various long-term investment vehicles such as corporate bonds, government bonds, and long-term certificates of deposit (CDs).
The primary function of financial capital markets is to facilitate the flow of funds between suppliers of financial capital, like households wishing to invest savings, and demanders of financial capital, like firms looking to raise money for growth and expansion. Markets are integral to achieving a suitable rate of return, managing risk, and providing liquidity.