plays a major role in the circulation of short-term funds in the economy. While standard deviation is the measure of risk in CML, Beta coefficient determines the risk factors of the SML. The instruments traded in money market carry low risk, hence, they are safer investments, but capital market instruments carry high risk. Where the market portfolio and risk free assets are determined by the CML, all security factors are determined by the SML. They are highly liquid (cash equivalents) in nature, and that is why their redemption period is limited to one year. Capital, market, line (CML the.
Forex.com, enjoy exclusive benefits you wont find anywhere else. Risk increases, return decreases. Both the markets are very important in the financial sector. Unlike the Capital Market Line, the Security Market Line shows the expected returns of individual assets. As against this, the capital market tends to fulfil long-term credit requirements of the companies, like providing fixed capital to purchase land, building or machinery. The standard deviation of the portfolio is shown along the X-axis for CML, whereas, the Beta of security is shown along the X-axis for SML.
Forex market vs capital market line