3. Definition
• A capital market is a financial market in which long-term debt (over a year) or
equity-backed securities are bought and sold
• Capital markets are financial markets that bring buyers and sellers together to
trade stocks, bonds, currencies, and other financial assets. Capital markets include
the stock market and the bond market.They help people with ideas become
entrepreneurs and help small businesses grow into big companies.
• Capital markets bring buyers and sellers together to invest and divest in shares,
bonds and other financial assets. Market-based finance promotes the
transformation of ideas into entrepreneurial initiatives and small businesses into
big companies.
4. Example of Capital Market
• Examples of capital markets are NASDAQ, BSE, NewYork Stock Exchange, London
Stock Exchange.
• Suppose a company says ABC requires capital for expanding its business, so it plans
to raise the required fund from the public by issuing new securities in the primary
market. After issuing the new securities, the people who are interesting in buying
those shares after doing research of the company, buy those shares through the
Initial Public Offering (IPO) process. After the initial buying, it starts trading in the
secondarily market, where the existing buyers and sellers start trading that
security.
5. Types of Capital Market
Capital market consists of two types
1. Primary Market
Primary market is the market for new shares or securities. A primary market is one
in which a company issues new securities in exchange for cash from an investor
(buyer).It deals with trade of new issues of stocks and other securities sold to the
investors.
6. 2. Secondary Market
Secondary market deals with the exchange of prevailing or previously-issued
securities among investors. Once new securities have been sold in the primary
market, an efficient manner must exist for their resale. Secondary markets give
investors the means to resell/ trade existing securities. Another important division
in the capital market is made on the basis of the nature of security sold or bought,
i.e. stock market and bond market.
7. Capital Market Instruments
There are mainly two types of instruments that are traded in the capital market,
which are:
1. Stocks: Stocks are sold and bought over a stock exchange,They represent
ownership in the company and the buyer of the share is referred as the
shareholder.
2. Bonds:The debt securities which are traded in the capital market are known as
the bonds. Companies issue bonds for in order to raise capital foe the expansion
of the business and growth.
8. Function
• Provides a common platform to both investors and savers
• Stimulates economic growth
• It improves the process of allocation of capital
• Prepares for continuity of funds availability
• Provides proper channeling of funds to be used productively
• Promotes Saving Habits
• Help to stabilize the prices of stocks
9. Features of Capital Market:
Here are the features of the Capital Market:
1. Serves as a link between Savers and Investment Opportunities:
The capital market serves as a crucial link between the saving and investment process as it
transfers money from savers to entrepreneurial borrowers.
2. Long term Investment:
It helps the investors to invest their hard-earned money in long-term investments.
3. Helps in Capital formation:
The capital market offers opportunities for those investors who have a surplus amount of
money and want to park their money in some type of investment and also take the benefit
of the power of compounding.
10. 4. Helps Intermediaries:
While transferring shares and money from one investor to another, it takes help
from intermediaries like brokers, banks, etc. thus helping them in conducting their
business.
5. Rules and Regulations:
The capital markets operate under the regulation and rules of the Government thus
making it a safe place to trade.