What Are Capital Markets?

What Are Capital Markets?

Capital market is a market that deals in trading long-term debt such as in the stock market, bond market and other related investments. And being a financial market where buying and selling of securities takes place, it becomes an instrument used to process long-term loans and a method of sourcing for financial assistance to governments and companies.

Intermediary Platform

All over the world, a capital market acts as an intermediary platform to raise fund for governments in order to finance tangible projects and for companies to expand in their operations. It works by issuing short-term financial securities, stocks and bonds to the parties involved which are traded on the stock markets. As the global economy is shrinking particularly in some developing countries, most governments rely on capital market to realize their targeted budgetary spending for a certain fiscal year.

Asides helping governments to raise money, capital market also serves as a medium where investors holding capital and companies that are in need of capital meet to transact business through equity and debt. Furthermore, it also provides market securities to capital holders which can be exchange with other companies at the current market prices.

TYPES OF CAPITAL MARKETS

Primary market

Primary market (known as New Issue Market, NIM) is the market used to process the issuance and sale of new securities, stocks and bonds. It is where new securities are obtained and sold at the market prices. Under primary capital, investors known as syndicates are required to be underwriters of Initial Public Offering, IPO.

Secondary market

Under secondary market which is also called Aftermarket, securities, bonds, stocks and other financial instruments previously issued are traded. Since capital market includes bond and stock markets which are traded to raise fund, government, companies and investors look up to it to finance their projects. Capital investors make profits by buying securities in the capital market which is later sold to interested organizations.

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