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9-Introduction To Capital Markets

The capital markets are a fundamental part of a country's financial system and promote economic growth. Capital markets channel savings from investors to businesses, governments, and individuals seeking capital to invest, build infrastructure, and create jobs. They consist of primary markets for new stock and bond issues and secondary markets for existing securities, providing liquidity. The primary role of capital markets is to raise long-term funds while providing a platform for trading securities. Stock exchanges are important parts of capital markets that provide liquidity, act as economic indicators, protect investors, and facilitate public borrowing and savings.

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386 views3 pages

9-Introduction To Capital Markets

The capital markets are a fundamental part of a country's financial system and promote economic growth. Capital markets channel savings from investors to businesses, governments, and individuals seeking capital to invest, build infrastructure, and create jobs. They consist of primary markets for new stock and bond issues and secondary markets for existing securities, providing liquidity. The primary role of capital markets is to raise long-term funds while providing a platform for trading securities. Stock exchanges are important parts of capital markets that provide liquidity, act as economic indicators, protect investors, and facilitate public borrowing and savings.

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Charles
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Introduction of Capital Market

A very important area of the financial services industry is the capital markets. The capital
markets are fundamental to the economy of the country. It promotes economic growth by
providing corporations and governments access to capital which enables these organizations to
invest in businesses, create jobs, and build infrastructure.

What are 'Capital Markets?'


De finition: Capital market is a market where buyers and sellers engage in trade of financial
securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as
individuals and institutions. Capital markets are markets for buying and selling equity and debt
instruments. Capital markets channel savings and investment between suppliers of capital such
as retail investors and institutional investors, and users of capital like businesses, government
and individuals. Capital markets are vital to the functioning of an economy, since capital is a
critical component for generating economic output.

Types of capital market:


1. Primary Market
2. Secondary Market

PRIMARY MARKET:
Capital markets include primary markets, where new stock and bond issues are sold to investors,
and secondary markets, which trade existing securities. This market is concerned with new
issues. Therefore, the primary market is also calle d NEW ISSUE M ARKET.

The money collected from this market is generally used by the companies to modernize the plant,
machinery and buildings, for extending business, and for setting up new business unit.

SECONDARY MARKET :
The secondary market is that market in which “the buying and selling of the previously issued
securities is done.” The transactions of the secondary market are generally done through the
medium of stock exchange. The purpose of the secondary market is to create liquidity in
securities. Majority of the trading is done in the secondary market. This market comprises of
Equity M arke t and De bt M arke t
Role of Capital Market
The primary role of the capital market is to raise long-term funds for governments, banks,
and corporations while providing a platform for the trading of securities

For companies, there are many reasons why they would want to raise capital. It is
typically to finance:

 Startup busi nesses – investing in new and innovative ideas


 Ongoi ng operati ons – one reason a company may have to do this is because of an
unexpected decline in revenue
 Expansi ons – at home or abroad, with existing or new products/services,
companies often need to borrow in order to grow

The reason why a person or organization would want to provide capital is more
straightforward. Those who provide capital to borrowers expect to make a profit from
their financing efforts.

STOCK EXCHANGE
According to M e rriam We bs te r:

“An as s ociation of pe ople organize d to provide an auction marke t among the ms e lve s for
the purchas e and s ale of s e curitie s .”

Stock Exchange (also called Stock M arke t or Share M arke t) is one important constituent of
capital market. Stock Exchange is an organized market for “the purchase and sale of industrial
and financial security”. It is convenient place where trading in securities is conducted in
systematic manner i.e. as per certain rules and regulations.

According to M ARSHAL; "Stock exchange are not merely the chief theaters of business
transaction, they are also barometers which indicate the general conditions of the atmosphere of
business."

Importance or Functions of Stock Exchange:


We discuss about major functions of stock exchange under these headings:-

1. Liquidity :
The main function of stock market is to provide ready market for sale and purchase of securities.
The presence of stock exchange market gives assurance to investors that their investment can be
converted into cash whenever they want. The investors can invest in long term investment
projects without any hesitation, as because of stock exchange they can convert long term
investment into short term and medium term.
2. Economic Barome te r:

A stock exchange is a reliable barometer to measure the economic condition of a country.


Every major change in country and economy is reflected in the prices of shares. The rise or fall
in the share prices indicates the boom or recession cycle of the economy. Stock exchange is also
known as a pulse of economy or economic mirror which reflects the economic conditions of a c
ountry.

3. Incre as ing Govt. Funds


:
The govt. can undertake projects of national importance and social value by raising funds
through sale of its securities on stock exchange.

4. Stock e xchange Prote ct inve s tors


:
As only genuine companies are listed and the activities of the stock exchange are controlled,
the funds of the investors are very much protected.

5. Facilitate s public borrowing:


Stock exchange serves as a platform for marketing Government securities. It enables
government to raise public debt easily and quickly.

6. Promotion of the habit of s aving:

Stock Exchange provides a place for saving to general public. Thus it creates the habit of
thrift and investment among the public. This habit leads to investment of funds incorporate or
government securities. The funds placed at the disposal of companies are used by them for
productive purposes.

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