Learn the types of capital market plus instruments and the primary and secondary market we have in the economy.
Every country in this world have a capital market as it is one of the essential factor that boost a country economy. There several markets we have in the financial institution like the capital market, stock exchange market, the money market etc. But right now, I want you the know what CAM is all about, the types of capital market and equally the instrument involved.
What is a Capital market
Capital market is a type of market or a part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments. Capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold. Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments.
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. So let’s look into the types of capital market we have.
Types of Capital Market
Generally the capital market is divided into two which are the primary and secondary market. So let’s look into the primary capital market
Primary Capital Market
You can as well call it the New Issues Market, is a types of capital market that deals with the issuance of new securities and then sold to investor directly by the issuer. Investor buy securities that were never traded before. Primary markets create long term instruments through which corporate entities raise funds from the capital market.
Primary market 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.
Secondary Capital Market
Secondary capital market is a type of capital market where securities are traded after the company has sold all the stocks and bonds offered on the primary market.
Also called the aftermarket and follow on public offering is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold.
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 corporate governance, which backs the trading environment. It includes all the processes that help in the transfer of already existing securities.
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So the types of capital market we have are the primary market and the secondary market. Don’t forget to share this posts thanks.