Capital Marketing and Its Examples

Just like there exists a market for everything, right from vegetables and fruits, to cars and clothes, there also exists a market exclusively for capital. This market, where buying and selling of capital goods and services take place, is thus known as a capital market. Capital markets can exist both physically and virtually. A physical capital market is a market that is physically present somewhere. It requires a space to be set up and is tangible in the sense that the physical setup of the market can be touched. These can be set up in the form of exhibitions and seminars. Nowadays, several firms also organize conferences and seminars to organize a capital market. 

What is meant by Capital?

Before embarking on a journey to learn about what a capital market is, you should know what Capital is. You must have heard this term before. Well, capital is nothing but money or wealth, or assets in some works which can be used to start a business or invest.

What is a Capital Market?

As the name suggests, a capital market functions as a place where buyers and sellers meet to deal with exchanges and trade financial securities such as bonds, stocks, etc. The structure of a capital market is such that it brings together the people with funds saved so they can put it to good use, meaning for investments in potentially profitable businesses.

The Structure of a Capital Market consists of two Types of Markets

• Primary markets- primary markets are markets that deal with exchange and trade in newly launched financial securities such as newly launched bonds, stocks, bills, or drafts. A newly launched security is a security that has not been issued by the firm in question previously.
• Secondary markets- secondary markets engage in trade activities of previously issued securities. A secondary market does not deal with bonds and stocks that have not been already issued. 

What is the Purpose of a Capital Market?

The motive behind a capital market is to raise funds for a business. The businesses that need to raise funds either organize a capital market or participate in a capital market that is already being organized. A capital market functions as the meeting place for buyers and sellers, and traders, and they are surrounded by a sea of options at relatively lower rates and risks.

What is the Capital Market’s Importance?

A capital market plays a significant role in raising funding. A capital market is important for several purposes. Some of them are:

• Helps in raising capital- as mentioned before, the main motive behind organizing or attending a capital market is to raise funds. Funds are crucial to the growth and success of a firm. A new firm needs funds to establish itself, whereas an established firm needs funds to expand its business operations, maximize its profitability. Even though firms earn huge profits, they might sometimes not find it feasible to use the profit earned all at once for R&D or expansion of operations. Moreover, firms like to keep some funds handy to meet any unforeseen circumstances that might appear. In such a case, it becomes important to raise funds externally.
• Lower risk and interest rates- although loans can be availed from banks and corporations, it usually seems easier to engage in a capital market because banking procedures require a lot of paperwork and is a complicated process in general. Moreover, firms might sometimes raise funds through the capital market at a cheaper rate with considerably less paperwork. This ease of doing business makes a capital market more preferred choice of the traders.
• Exchange of ideas- a capital market is not only a good place to engage in an exchange of financial services but also a great place to exchange ideas. A capital market is attended by like-minded individuals and traders. Conversations and interactions can lead to some extraordinary ideas-exchange which might turn out to be the next thing in the business.
• Inspires people to do better- sometimes, people visit a capital market not to engage in exchange or trade but simply to see what is capital market. Seeing creative ideas around might inspire someone to come up with their own business idea. In the case of existing firms, everyone knows that a bank loan facility is available, but a capital market makes people work better to find the best possible way to attract a cheaper and less risky funding option. 

What are the examples of Capital Markets?

Growth in businesses and economic activities gradually led to the establishment and organization of some top-notch capital markets. These markets are handled by extremely qualified personnel who are some of the best people in their fields.

Some commonly heard examples of some of the most well-organized and sought-after capital markets in the world are listed below. Make a list of how many of these have you heard before:

• New York Stock Exchange
• American Stock Exchange
• London Stock Exchange
• NASDAQ

Conclusion

We are sure you have now understood what the capital market is and how it works. A Capital   Market is not only important for firms that want to raise money but also helps in the economic development of a nation by accelerating trade exchanges and economic activities.