A Business Encyclopedia

Capital Market

Definition: Capital Market, is used to mean the market for long term investments, that have explicit or implicit claims to capital. Long term investments refers to those investments whose lock-in period is greater than one year.

In the capital market, both equity and debt instruments, such as equity shares, preference shares, debentures, zero-coupon bonds, secured premium notes and the like are bought and sold, as well as it covers all forms of lending and borrowing.

Capital Market is composed of those institutions and mechanisms with the help of which medium and long term funds are combined and made available to individuals, businesses and government. Both private placement sources and organized market like securities exchange are included in it.

Functions of Capital Market

  • Mobilization of savings to finance long term investments.
  • Facilitates trading of securities.
  • Minimization of transaction and information cost.
  • Encourage wide range of ownership of productive assets.
  • Quick valuation of financial instruments like shares and debentures.
  • Facilitates transaction settlement, as per the definite time schedules.
  • Offering insurance against market or price risk, through derivative trading.
  • Improvement in th effectiveness of capital allocation, with the help of competitive price mechanism.

Capital market is a measure of inherent strength of the economy. It is one of the best source of finance, for the companies, and offers a spectrum of investment avenues to the investors, which in turn encourages capital creation in the economy.

Types of Capital Market

The capital market is bifurcated in two segments, primary market and secondary market:

capital market

  1. Primary Market: Otherwise called as New Issues Market, it is the market for the trading of new securities, for the first time. It embraces both initial public offering and further public offering. In the primary market, the mobilisation of funds takes place through prospectus, right issue and private placement of securities.
  2. Secondary Market: Secondary Market can be described as the market for old securities, in the sense that securities which are previously issued in the primary market are traded here. The trading takes place between investors, that follows the original issue in the primary market. It covers both stock exchange and over-the counter market.

Capital market improves the quality of information available to the investor regarding the investment. Add to that, it plays a crucial role in encouraging the adoption of rules of corporategovernance, which backs the trading environment. It includes all the processes that help in the transfer of already existing securities.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

classical theory of motivationequation for budget linemcgregors theory of x and ydefine indifference curve in economicsegoism business ethicselastic demand definition economicsmeaning of industrial relations pptexample of total utility and marginal utilityballoon payment loanwhat is cluster sampling techniqueclassical organizational theoriesadventure meaning in urduwhat is preferential sharesthe employee provident fund schemegeocentric approachdefinition of neoclassicaldefinition of ordinal scaleherzbergs motivation theorydefinition for hire purchasedefinition of parachutegangplank meaningpromotion mix examplescyclical unemployment recessionchit fundspsychoanalytic theories definitiondefinition of moratorium periodmeaning of controllableideal debtors turnover ratioformula for debtors collection periodschumpeterian definitionwhat is the meaning of rbimeaning of arbitrage in financeconcept of job enrichmentwhat was ivan pavlov theorymne definition businessindifference curve definitionfringe market definitionhow to implement business process reengineeringnew pension system npspavlov classical conditioning theorybrand mark definitionmeaning of judgementalhindi meaning of implicationformula of profitability indexmeaning of jargonsselection process hrmdemand pull inflation definition economicsojt meaningprofitablility indexdavid mcclelland theory of needsmeaning of wholesaler and retailerrating scale method of performance appraisalnsc saving schemewhats resonancepricing methods in economicsrecurring deposit definitionmeaning of scorecardwhat does rowan meangeneric and grand strategiesasset turnover ratio analysisfayol theoryfixed asset turnover ratio formula examplemeaning of perfect competitiondivest strategyneft transfer meanswhat are four factors that affect elasticitydefine elastic demandbrand loyalty pyramidunstructured interview definitiondefinition of diminishing marginal returnsdefine marketing intelligencemaximum limit of neftdefinition of substitute goods in economicsdemat account introductionretrenchment strategy in strategic managementbureaucracy simple definitionfeatures of monopolistic marketwhat are the characteristics of pure competitioncrr rate meaningdefine monetary policy in economics