📘 Q.4 IAS Prelims 2023 — Economics (Financial Markets)
🧷 Authentic Classroom Explanation by IAS Monk
📌 The Question:
Consider the following markets:
1. Government Bond Market
2. Call Money Market
3. Treasury Bill Market
4. Stock Market
How many of the above are included in capital markets?
(a) Only one
(b) Only two
(c) Only three
(d) All four
✅ Correct Answer: (b) Only two
🧠 Curiosity Raiser
Why is a 30-day Treasury Bill treated differently from a 10-year Government Bond,
even though both are issued by the same government?
The answer lies in time horizon, not issuer.
📘 Enrichment Notes (Capital Market vs Money Market — crystal clear)
🔹 What is a Capital Market?
A capital market deals with long-term funds, typically more than one year maturity, and includes:
- Equity instruments
- Long-term debt instruments
Its purpose is capital formation, not daily liquidity management.
🔹 Classification of the given markets
✅ 1. Government Bond Market — Capital Market
- Government Bonds (dated securities) have long-term maturity
- Used for infrastructure, fiscal financing, long-term investment
✔️ Included in Capital Market
❌ 2. Call Money Market — Money Market
- Overnight to very short-term borrowing
- Mainly between banks for daily liquidity needs
❌ Not a Capital Market instrument
❌ 3. Treasury Bill Market — Money Market
- T-Bills have maturities of 91 days, 182 days, 364 days
- Purely short-term government borrowing
❌ Money Market instrument
✅ 4. Stock Market — Capital Market
- Deals in equity shares and long-term securities
- Core component of capital market
✔️ Included in Capital Market
🔢 Final Count
Included in Capital Market:
✔️ Government Bond Market
✔️ Stock Market
Total = 2
🧩 Concept Lock (Exam Recall)
Capital Market = Long-term (>1 year)
Money Market = Short-term (≤1 year)
Issuer doesn’t matter.
Maturity does.
🧘♂️ IAS Monk Whisper
Money markets keep the heart beating daily.
Capital markets build the body for decades.