6. 1.Banks
1. From Banks Mr. Ace can approach
banks, but it will not prove to be a healthy
option because: -
Bank will charge him High rate of interest.
Lending of loans is a very tedious task.
Bank first scrutinizes the papers/
documents, verifies them.
Very time Consuming Process. Thus, this
idea is not an effective one.
8. Meaning of Capital Market
Capital Market is the part of financial
system which is concerned with raising
capital funds by dealing in Shares, Bonds,
and other long-term investments.
The market where Investment instruments
like bonds, equities and mortgages are
traded is known as the capital market.
9. The different types of financial
instruments that are traded in the
capital markets are
1. equity instruments
2. credit market instruments,
3. insurance instruments,
4. foreign exchange instruments,
5. hybrid instruments.
10. Role and Function of Capital Market
Capital Formation
Avenue Provision of Investment
Speed up Economic Growth and Development
Mobilization of Savings
Proper Regulation of Funds
Service Provision
Continuous Availability of Funds
11. Factors affect the Capital Market
• Economy of the Country
• Money Supply
• Interest Rate
• Corporate Results
• Global Capital Market Scenario
• Foreign Funds Inflow
• Strength/Weakness of the local currency
12. Classification of Capital Marketing
CAPITAL MARKET
PRIMARY MARKET
SECONDARY
MARKET
PUBLIC
ISSUE
RIGHT
ISSUE
BONUS
ISSUE
PRIVATE
PLACEMENT
STOCK MARKET
13. Primary Market
It is that market in which shares,
debentures and other securities are sold
for the first time for collecting long-term
capital.
This market is concerned with new
issues. Therefore, the primary market is
also called NEW ISSUE MARKET.
14. Features of Primary Market
It Is Related With New Issues
It Has No Particular Place
It Has Various Methods Of Float Capital: Following are the
methods of raising capital in the primary market:
i) Public Issue
ii) Offer For Sale
iii) Private Placement
iv) Right Issue
v) Electronic-Initial Public Offer
It comes before Secondary Market
15. 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 chief purpose of the secondary market is to
create liquidity in securities.
16. Features of Secondary
Market
• It Creates Liquidity
• It Comes After Primary Market
• It Has A Particular Place
• It Encourages New Investments
17. Financial instruments dealt in
Secondary market
Equity Shares:
An equity share is commonly referred to as an ordinary share.
It is an form of fractional ownership in which a shareholder, as a
fractional owner, undertakes the entrepreneurial risk associated
with the business venture.
Holders of the equity shares are members of the company and have
voting rights.
Right shares:
This refers to the issue of new securities to the existing
shareholders, at a ratio to those shares already held.
Bonus Shares:
These shares are issued by the companies to their shareholders free
of cost by capitalization of accumulated reserves from the profit
earned in the earlier years.
18. Cont…
Preference shares:
These shareholder do not have voting rights.
Owners of these shares are entitled to a fixed dividend or a dividend
calculated at a fixed rate to be paid regularly before any dividend can
be paid in respect of equity shares.
These shareholders also enjoy priority over the equity shareholders in
the payment of surplus.
Cumulative Preference Shares:
This is a type of preference shares on which dividend accumulates if it
remains unpaid.
Cumulative Convertible Preference
Shares:
This is a type of preference shares on where the dividend payable on
the same accumulates, if not paid. After a specified date, these shares
will be converted into equity capital of the company.
