Capital Market
Capital markets:Meaning:
Capital markets are markets where people, companies, and governments withmore funds than they need (because they save some of their income) transfer those funds to people, companies, or governments who have a shortage of funds(because they spend more than their income). Stock and bond markets are twomajor capital markets. Capital markets promote economic efficiency bychannelling money from those who do not have an immediate productive use for it to those who do.Capital markets carry out the desirable economic function of directing capital toproductive uses. The savers (governments, businesses, and people who savesome portion of their income) invest their money in capital markets like stocksand bonds. The borrowers (governments, businesses, and people who spendmore than their income) borrow the savers' investments that have been entrustedto the capital markets.For example, suppose A and B make Rs. 50,000 in one year, but they onlyspend Rs.40,000 that year. They can invest the 10,000 - their savings - in amutual fund investing in stocks and bonds all over the world. They know thatmaking such an investment is riskier than keeping the 10,000 at home or in asavings account. But they hope that over the long-term the investment will yieldgreater returns than cash holdings or interest on a savings account. Theborrowers in this example are the companies that issued the stocks or bonds thatare part of the mutual fund portfolio. Because the companies have spendingneeds that exceeds their income, they finance their spending needs by issuingsecurities in the capital markets.
The Structure of Capital MarketsPrimary markets:
The primary market is where new securities (stocks and bonds are the mostcommon) are issued. The corporation or government agency that needs funds(the borrower) issues securities to purchasers in the primary market. Biginvestment banks assist in this issuing process. The banks underwrite
Capital markets are markets where people, companies, and governments withmore funds than they need (because they save some of their income) transfer those funds to people, companies, or governments who have a shortage of funds(because they spend more than their income). Stock and bond markets are twomajor capital markets. Capital markets promote economic efficiency bychannelling money from those who do not have an immediate productive use for it to those who do.Capital markets carry out the desirable economic function of directing capital toproductive uses. The savers (governments, businesses, and people who savesome portion of their income) invest their money in capital markets like stocksand bonds. The borrowers (governments, businesses, and people who spendmore than their income) borrow the savers' investments that have been entrustedto the capital markets.For example, suppose A and B make Rs. 50,000 in one year, but they onlyspend Rs.40,000 that year. They can invest the 10,000 - their savings - in amutual fund investing in stocks and bonds all over the world. They know thatmaking such an investment is riskier than keeping the 10,000 at home or in asavings account. But they hope that over the long-term the investment will yieldgreater returns than cash holdings or interest on a savings account. Theborrowers in this example are the companies that issued the stocks or bonds thatare part of the mutual fund portfolio. Because the companies have spendingneeds that exceeds their income, they finance their spending needs by issuingsecurities in the capital markets.
The Structure of Capital MarketsPrimary markets:
The primary market is where new securities (stocks and bonds are the mostcommon) are issued. The corporation or government agency that needs funds(the borrower) issues securities to purchasers in the primary market. Biginvestment banks assist in this issuing process. The banks underwrite