Capital Market is a place were buyer and sellers engage in trade like bonds, stocks etc. Buying and Selling is undertaken by participants like individuals and institutions. There are mainly two types of financial market in economy like capital market and money market. Capital market deals in long term securities.
Types of Capital Market
There are two major types of market
- Primary Market
- Secondary Market
Primary market is also called as new issue market. It deals with issues related to new securities ie: securities issued to investors first time.
Primary market deals mainly in capital formation for companies, government, institution.
Secondary market is also known as stock exchange or stock market. Securities are brought and sold by investors. In secondary market the trading exist only of existing securities.
Capital market improves the quality of information available to the investor regarding the investment.
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 the effectiveness of capital allocation, with the help of competitive price mechanism.
Features of Capital Market
- Connects savers and entrepreneurial borrowers
- Deals in medium and long-term investments
- Foreign Investors
- Over-the-counter market
- Presence of intermediaries
- Determinant of rate of capital formation:
- Capital Markets are regulated by government rules and regulations
- Deals in marketable and non-marketable securities
- Variety of investors
- Provides liquidity