Capital markets are markets where the channelling of savings and investments takes place between suppliers and needy parties. Suppliers include parties like individuals or financial institutions that have capital. This capital can be used for lending or investing. Financial institutions, in particular, involve banks and other investors. Needy parties are those who are in need of capital like individuals, entrepreneurs, business organizations, and governments. The concept of capital market in real life consists of bond and stock markets. These markets facilitate the improvement of transactional efficiencies. We will also take a look at the difference between the capital market and the money market.
The concept of capital market is a broad term that helps in describing in-person and digital spaces. In such spaces, there is the trading of various types of financial instruments among different entities.
These spaces or venues are as follows:
The concentration of most capital markets is in the world’s major financial centres. Such financial centres are as follows:
Capital markets involve the following two important parties:
Suppliers are as follows:
Financial institutions are as follows:
The users of funds in the capital markets are as follows:
The primary function of capital markets is the selling of financial products. Such products can be like interest-bearing debt securities or bonds and equities. Equities involve stocks, which represent ownership shares of an organization.
The division of capital markets take place into the following two parts:
There are two types of capital market in existence which are as follows:
In the financial markets, there are two different types of markets
Use of the money market takes place for short-term borrowing and lending. In contrast, the use of the capital market takes place for long-term assets. Long-term assets are those whose maturity exceeds the period of one year.
The concept of the capital market involves the trading of certain financial products for a long duration of time. Such financial products are:
Money markets are unorganised compared to capital markets. Here, trading in financial instruments takes place for a short period among brokers, money dealers, banks, and other financial institutions.
Money markets involve various short-term debt instruments such as follows;
These short-term debt instruments of the money market are highly liquid. Moreover, their redeeming period is less than one year.
Trading in the money market usually takes place through an over-the-counter (OTC) procedure. This involves either no exchanges or a minute amount of exchanges. Business organisations and other parties can acquire short-term credit in the money market. This way, the money market plays a crucial role in ensuring liquidity in the economic system over a short time period.
Capital markets are markets that help in the channelling of savings and investments. This takes place between suppliers and needy parties. Suppliers include parties like individuals or financial institutions like banks. Those who need capital are individuals, entrepreneurs, business organizations, and governments. Capital markets are of two types- primary and secondary markets. The primary market deals with new securities that are issued in the stock market. Secondary markets involve the trading of securities. There is a difference between capital market and money market. The money market involves short term borrowing and lending. On the other hand, dealing with long-term assets takes place in the capital market.
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