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A type of market in which the buyers and sellers can be found to be engaging in the trade of financial securities such as bonds and stocks is known as capital market. This process of buying and selling is done by various individuals and institutions. The suppliers can include banks and investors whilst those who seek the capital can include businesses, governments and institutions.
Benefits of Capital Market
In a capital market, the surplus funds from savers can be used by institutions that further make the most out of the funds by their productive use. It can be said that commonly, the capital market trades mostly in long term securities. Capital markets help in bringing the suppliers together with the ones who are seeking capital. Capital markets can be called away to exchange securities.
Types of Capital Market
There are types of capital markets that can be commonly observed. These include primary markets and secondary markets. A primary market deals with the trade of novel issues of stocks and securities. On the other hand, the secondary market deals with the exchange of previous issues or existing securities. In a primary capital market, the organization sells their stocks or bonds for the first time. For example, in Initial Public Offering. The mechanism used for selling new stock or bonds is known as underwriting. The secondary market can further have two sub-divisions, the auction and the dealer markets. The auction market can include an open outcry system whereas the dealer markets individuals trade using electric networks. Apart from primary and secondary markets division, another crucial way through which the capital market is divided is based on the nature of security trading. This division includes the stock market and bond market.
Working of Capital Market
With the help of proper academic study and research, the working of the capital market can be understood. Depending on the seller’s and buyer’s interests the common goals can be understood. Proper functioning of the capital market is essential to make the most out of it.
Conclusion
Capital markets play an important role in the world of businesses and it is crucial to have a proper understanding of the capital market to make the most out of it. In a capital market, the buyers and sellers can be found to be engaging in the trade of financial securities such as bonds and stocks is known as capital market. This exchange is made in such a way that both the buyers as well as sellers can be benefitted from it. There are different types of the capital market. These types include primary capital market, secondary capital market, bonds and the stock market.
