IM-Module-2
(Capital market- meaning - structure- functions- money market Vs capital market - capital market
instrument - shares- debentures - bonds - stock exchanges - roles - functions - stock exchanges in
India - BSE- NSE- OTCEI- trading mechanism - online trading - types of investors - types of
speculators)
Capital Market- Meaning
A capital market is an organized market in which both individuals and business entities buy
and sell debt and equity securities. It is designed to be an efficient way to enter into purchase
and sale transactions.
This market is a key source of funds for an entity whose securities are permitted by a regulatory
authority to be traded, since it can readily sell its debt obligations and equity to investors.
Governments also use capital markets to raise funds, typically through the issuance of long -
term bonds.
Capital markets are composed of primary and secondary markets. The most common capital
markets are the stock market and the bond market.
Types of Capital Market:
The capital market is mainly categorized into:
Capital markets are a crucial part of a functioning modern economy because they move money from
the people who have it to those who need it for productive use.
These markets are divided into two different categories: primary markets—where new equity stock
and bond issues are sold to investors—and secondary markets, which trade existing securities.
Primary Market
When a company publicly sells new stocks or bonds for the first time—such as in an initial public
offering (IPO)—it does so in the primary capital market. This market is sometimes called the new
issues market.
When investors purchase securities on the primary capital market, the company that offers the
securities hires an underwriting firm to review it and create a prospectus outlining the price and
other details of the securities to be issued.
All issues on the primary market are subject to strict regulation. Companies must file statements
with the Securities and Exchange Commission (SEC) and other securities agencies and must wait
until their filings are approved before they can go public
Secondary Market
The secondary market, on the other hand, includes venues overseen by a regulatory body like the
SEC where these previously issued securities are traded between investors. Issuing companies do
not have a part in the secondary market. The New York Stock Exchange (NYSE) and Nasdaq are
examples of secondary markets.
The secondary market has two different categories: the auction and the dealer markets. The auction
market is home to the open outcry system where buyers and sellers congregate in one location and
announce the prices at which they are willing to buy and sell their securities. The NYSE is one such
, example. In dealer markets, though, people trade through electronic networks. Most small investors
trade through dealer markets
Features of Capital Market:
Here are the features of the Capital Market:
1. Serves as a link between Savers and Investment Opportunities:
The capital market serves as a crucial link between the saving and investment process as it transfers
money from savers to entrepreneurial borrowers.
2. Long term Investment:
It helps the investors to invest their hard-earned money in long-term investments.
3. Helps in Capital formation:
The capital market offers opportunities for those investors who have a surplus amount of money and
want to park their money in some type of investment and also take the benefit of the power of
compounding.
4. Helps Intermediaries:
While transferring shares and money from one investor to another, it takes help from intermediaries
like brokers, banks, etc. thus helping them in conducting their business.
5. Rules and Regulations:
The capital markets operate under the regulation and rules of the Government thus making it a safe
place to trade.
Functions of Capital Market
The main functions of the capital market are:
▪ The capital market acts as the link between the investors and savers.
▪ It helps in facilitating the movement of capital to more productive areas to boost the national
income.
▪ It boosts economic growth.
▪ It helps in the mobilization of savings for financing long term investment.
▪ It facilitates the trading of securities.
▪ It reduces transaction and information cost.
▪ It helps in quick valuations of financial instruments.
▪ Through derivative trading, it offers hedging against market risks.
▪ It helps in facilitating transaction settlement.
▪ It improves the effectiveness of capital allocation.
▪ It provides continuous availability of funds to the companies and government.
Structure of Capital Market
The capital market in India consists of the following structure:
(Capital market- meaning - structure- functions- money market Vs capital market - capital market
instrument - shares- debentures - bonds - stock exchanges - roles - functions - stock exchanges in
India - BSE- NSE- OTCEI- trading mechanism - online trading - types of investors - types of
speculators)
Capital Market- Meaning
A capital market is an organized market in which both individuals and business entities buy
and sell debt and equity securities. It is designed to be an efficient way to enter into purchase
and sale transactions.
This market is a key source of funds for an entity whose securities are permitted by a regulatory
authority to be traded, since it can readily sell its debt obligations and equity to investors.
Governments also use capital markets to raise funds, typically through the issuance of long -
term bonds.
Capital markets are composed of primary and secondary markets. The most common capital
markets are the stock market and the bond market.
Types of Capital Market:
The capital market is mainly categorized into:
Capital markets are a crucial part of a functioning modern economy because they move money from
the people who have it to those who need it for productive use.
These markets are divided into two different categories: primary markets—where new equity stock
and bond issues are sold to investors—and secondary markets, which trade existing securities.
Primary Market
When a company publicly sells new stocks or bonds for the first time—such as in an initial public
offering (IPO)—it does so in the primary capital market. This market is sometimes called the new
issues market.
When investors purchase securities on the primary capital market, the company that offers the
securities hires an underwriting firm to review it and create a prospectus outlining the price and
other details of the securities to be issued.
All issues on the primary market are subject to strict regulation. Companies must file statements
with the Securities and Exchange Commission (SEC) and other securities agencies and must wait
until their filings are approved before they can go public
Secondary Market
The secondary market, on the other hand, includes venues overseen by a regulatory body like the
SEC where these previously issued securities are traded between investors. Issuing companies do
not have a part in the secondary market. The New York Stock Exchange (NYSE) and Nasdaq are
examples of secondary markets.
The secondary market has two different categories: the auction and the dealer markets. The auction
market is home to the open outcry system where buyers and sellers congregate in one location and
announce the prices at which they are willing to buy and sell their securities. The NYSE is one such
, example. In dealer markets, though, people trade through electronic networks. Most small investors
trade through dealer markets
Features of Capital Market:
Here are the features of the Capital Market:
1. Serves as a link between Savers and Investment Opportunities:
The capital market serves as a crucial link between the saving and investment process as it transfers
money from savers to entrepreneurial borrowers.
2. Long term Investment:
It helps the investors to invest their hard-earned money in long-term investments.
3. Helps in Capital formation:
The capital market offers opportunities for those investors who have a surplus amount of money and
want to park their money in some type of investment and also take the benefit of the power of
compounding.
4. Helps Intermediaries:
While transferring shares and money from one investor to another, it takes help from intermediaries
like brokers, banks, etc. thus helping them in conducting their business.
5. Rules and Regulations:
The capital markets operate under the regulation and rules of the Government thus making it a safe
place to trade.
Functions of Capital Market
The main functions of the capital market are:
▪ The capital market acts as the link between the investors and savers.
▪ It helps in facilitating the movement of capital to more productive areas to boost the national
income.
▪ It boosts economic growth.
▪ It helps in the mobilization of savings for financing long term investment.
▪ It facilitates the trading of securities.
▪ It reduces transaction and information cost.
▪ It helps in quick valuations of financial instruments.
▪ Through derivative trading, it offers hedging against market risks.
▪ It helps in facilitating transaction settlement.
▪ It improves the effectiveness of capital allocation.
▪ It provides continuous availability of funds to the companies and government.
Structure of Capital Market
The capital market in India consists of the following structure:
