The capital market is a financial system where individuals and institutions trade long-term securities, such as stocks and bonds, to raise capital for businesses and governments. It plays a crucial role in economic development by facilitating the flow of funds from investors to entities needing financial resources.
Capital Market
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Capital Market: An Overview
Types of Capital Markets
1- Primary Market (New Issue Market)
➤ Where new securities (stocks, bonds) are issued and sold for the first time.
➤ Companies raise funds through Initial Public Offerings (IPOs) or private placements.
2- Secondary Market (Stock Market)
➤ Where existing securities are traded among investors.
➤ Stock exchanges like the NSE, BSE (India), NYSE, NASDAQ (USA), and LSE (UK) facilitate these trades.
Key Instruments in Capital Markets
➤ Equity Shares (Stocks) – Represent ownership in a company.
➤ Bonds & Debentures – Debt instruments where companies/governments borrow funds.
➤ Mutual Funds – Pooled investments managed by professionals.
➤ Derivatives – Financial contracts like futures & options based on asset prices.
Functions of the Capital Market
➤ Mobilizing Savings – Converts savings into productive investments.
➤ Facilitating Investment – Provides funds to businesses and governments.
➤ Liquidity & Trading – Allows investors to buy/sell assets easily.
➤ Economic Growth – Supports industrial expansion and infrastructure development.
Participants in the Capital Market
➤ Investors – Individuals, mutual funds, pension funds, hedge funds.
➤ Companies & Governments – Issue securities to raise funds.
➤ Stock Exchanges – Platforms for buying/selling securities.
➤ Regulators – Bodies like SEBI (India), SEC (USA) ensure transparency and compliance.
Challenges in the Capital Market
➤ Market Volatility – Prices fluctuate due to economic and political events.
➤ Regulatory Risks – Policy changes can impact markets.
➤ Liquidity Issues – Some securities may not have active buyers.
➤ Fraud & Manipulation – Insider trading and scams can harm investors.