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When you hear the word “market,” what do you exactly think? Do you envision a grocery store, a vegetable market, or even a shopping center on a town square? Although all of these are examples of markets, you might be shocked to hear that some significant markets aren’t even stores. In reality, it’s unlikely that buyers and vendors will ever interact. But without these markets—which are capital markets—our economy would not run as smoothly. In this article, we will get to know about the types of capital market, how it operates, and the objectives of capital marketing.
Financial markets, known as capital markets, connect buyers and sellers to transact in stocks, bonds, currencies, and other financial assets. Bond and stock markets can also be termed as parts of the capital market. They support the development of entrepreneurs and the expansion of small firms into larger ones.
- 1 What is a Capital Market?
- 2 How does a Capital Market Operate?
- 3 What are the Types of Capital Markets?
- 4 Different instruments of the capital market
- 5 Objectives of Capital Marketing
- 6 FAQs on Objectives of Capital Marketing
- 7 Conclusion
What is a Capital Market?
The capital market revolves around financial tools used by both vendors and consumers, such as bonds, debentures, etc. Members in the market places come both individually and even from companies.
Most securities traded on the capital market are long-term ones. Because the scale of a country’s capital markets directly relates to the size of its economy, little movements in one area can have significant effects elsewhere. Click here to find the steps involved in the Marketing Research Process
How does a Capital Market Operate?
A capital market helps an economy by giving access to finance for corporate operations, development projects, or wealth creation. The cyclic flow of money hypothesis underpins how a capital market operates.
For instance, when a company needs money to run its operations, it typically borrows it from people’s homes or other sources. The capital from respective investors or households is financed in a company’s shares or bonds on the stock market. Investors receive rewards in the form of earnings as well as goods and services.
The market consists of financial providers and consumers, as well as trading tools and systems. Regulatory organizations are also present. In capital marketing, we deal with aspects like equity markets, stock exchanges, etc.
What are the Types of Capital Markets?
The capital market is further subdivided into two parts:
- Primary Market
- Secondary Market
The primary capital market is based on Initial Public Offering(IPO), which occurs when a firm introduces its stocks for the first time. This market can be termed or coined as an abbreviated form of marketplace. When the organization delivers the securities, it keeps an underwriting company to analyze it and develop a prospectus clarifying the costs and other aspects of the securities to be allotted when investors purchase securities on the primary capital market.
On the primary market, there are strict regulations that apply to all issues. The SEC (Securities Exchange Commission) must authorize the firm’s fillings as they put up their shares in the market.
Customers buy and sell financial and investment products, including stocks, shares, and bonds, among others, in the secondary capital markets. The transaction and exchange of existing or formerly issued securities are the primary aspects of a secondary capital market.
In secondary capital markets, there are stock markets like the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), the New York Stock Exchange (NYSE), and also NASDAQ. The secondary market is made up of exchanges where existing or recently-issued securities can be traded between investors and are governed by regulatory bodies like the Securities and Exchange Commission (SEC). As a result, the issuing firms are excluded from the secondary market.
See Also: What is Business Planning Objectives?
Different instruments of the capital market
The portion of ownership owned by shareholders in a firm is referred to as equity securities.
To put it plainly, it alludes to the purchase of business equity stock in exchange for joining the company as a shareholder.
There’s no guarantee of regular profits when you are an equity holder, which is why it is different from a debt holder.
Bonds are a type of financial instrument issued by both the government and business. Governments and companies that issue corporate bonds are the main issuers of bonds.
While some corporate bonds are unsecured, others are secured by the assets of the corporation that issued them. An investor who purchases a bond does so as a form of fixed-term, fixed-interest lending.
A debenture is a document that serves as evidence of debt. Debentures are fundamentally an acknowledgment of debt. It is a debt instrument that a business has issued with the assurance that it would pay interest and refund the principal when it matures. Holders of debentures are the company’s creditors. According to Section 2 (12) of the Companies Act of 1956, debentures comprise bonds, shares, and other securities of a corporation.
Financial instruments that are available on international markets are known as foreign exchange instruments. Derivatives and currency agreements make up the majority of it.
They can be split up into three parties according to currency contracts: spot, outright forwards, and currency swap.
Objectives of Capital Marketing
Investor protection is the main goal of capital market regulation, and investors need to be safeguarded from vices like creative accounting, insider dealing, and misusing client money.
In conclusion, capital market regulation aims to protect the public interest by fostering confidence and economic growth, both of which should encourage foreign direct investment. Hence, market regulation is one of the most prominent objectives of capital marketing.
It is a very liquid market since it is simple to transform the instruments traded on the capital market into cash. Investors can sell their products on the open market if they need to convert their assets into cash. For those wishing to invest and those looking to borrow money, it offers a 24/7 market. Hence, one of the main objectives of capital marketing is liquidity.
FAQs on Objectives of Capital Marketing
What does Capital Marketing mean in the Literal Sense?
Stock, bonds, currency, and other financial assets are traded in capital markets, which are financial marketplaces that connect buyers and sellers. The stock market and the bond market are examples of capital markets. They aid in the entrepreneurship of those with ideas and the expansion of small firms into larger ones.
What are Examples of the Capital Market?
Organized capital markets are the Bombay Stock Exchange in India, and the London Stock Exchange in the United Kingdom. In addition to trading on a regulated exchange, securities can further be exchanged over the counter.
How does the Capital Market Benefit you?
Strong capital markets not only provide employment prospects and productivity growth but also contribute to macroeconomic stability and a host of other tangible and intangible benefits.
The objectives of capital marketing are to bring in opportunities for both consumer groups and production groups. It is an open space or market that facilitates the discharge of transactions. Even though there are stakes, it is highly flexible.
Hence, here is all we have for capital marketing in a broad sense. It is important to remember that in the capital market, there is a wider scope of cash inflow than any other means.