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Financial instruments with high liquidity and short maturities -- typically a year or less -- trade in money markets. Long-term assets with maturities longer than a year trade in the capital markets. Together, they comprise a large portion of the financial markets, and many companies, governments and individuals use them to manage liquidity and risks.

Capital markets include the stock and bond markets. They serve as proxies for world markets and are therefore widely followed. Stock exchanges, commercial banks and all types of corporations that operate in capital markets are closely scrutinized. They use the capital they raise for long-term purposes, like mergers or new business lines.

Companies, along with federal and local governments, issue debt through the bond markets. Companies can issue equity on the stock market to raise capital. Since governments are not publicly held, they cannot issue equity.

New securities are bought and sold through the primary market. Securities that have already been issued are traded on the secondary market. Both are part of the capital market.

Capital markets usually offer better returns, but they’re riskier, and not the best place for short-term funds. Money markets are a safe place to park funds that’ll be needed soon. For example, retirees living on fixed incomes use money market instruments to keep their money safe and accessible.

Deposits, collateral loans, acceptances and bills of exchanges are used in money markets. Central banks and commercial banks, as well as acceptance houses, operate in money markets.

Short-term debt is used to cover expenses such as payroll. Companies and governments use money markets to maintain the right amount of daily liquidity they need without putting too much money into investments that will yield smaller returns.

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