What is capital market?
Capital Market: The market which deals with medium and long term funds is called capital market. Capital market refers to all facilities and the institutional arrangements for borrowing and lending for medium and long term. Mainly demands for long term funds comes from private business corporations, public business corporations and the government. Supply of money or funds comes from individual and institutional investors, banks and special industrial financial institutions and government.
The capital market mainly classified into two ways-
(I) Primary market: primary market is new issue securities like market of share, debenture of non government public limited companies, preference shares and public sector bonds.
(II) Secondary market: this market refers to already or preissued securities OR The market which allow to buy and sale of securities.
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.
Other factors related to capital market-
Gild-Edged Market: This market refers to seles and purchases of government securities.
Financial Intermediaries: it includes Mutual Fund, Leasing companies, Merchant Bank etc. They help to manage saving and supplying funds to Capital market.
Industrial Securities Market: In Industrial Securities market shares and debentures of new companies are bought and sales that means it deals with debentures and equities.
Development Financial institutions: Institutions like(LIC,IFCI,UTI,GIC,IDBI,ICICI etc) were set up to meet the medium and Long term requirements of industry, agriculture and trade. These institutions are called public sector financial institutions.
Buy Back: means 'share repurchase'.
Equity: ' Bunch of shares'.
Debenture: borrowing money on the basis of agreement.
Debt: The funds raised by company through issue of debt instruments.
IPOs: First time investment from the public by offering shares is known as initial public offerings.
FPOs: When a listed company invest to raise further capital known as follow on public offers.