03-12-2012, 05:02 PM
CAPITAL MARKET
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The market where investment instruments like bonds, equities and mortgages are traded is known as the capital market.
The primal role of this market is to make investment from investors who have surplus funds to the ones who are running a deficit.
The capital market offers both long term and overnight funds.
Types of financial instruments
The different types of financial instruments that are traded in the capital markets are:
equity instruments
credit market instruments,
insurance instruments,
foreign exchange instruments,
hybrid instruments and
derivative instruments.
Nature of capital market
The nature of capital market is brought out by the following facts:
It Has Two Segments
It Deals In Long-Term Securities
It Performs Trade-off Function
It Creates Dispersion In Business Ownership
It Helps In Capital Formation
It Helps In Creating Liquidity
Primary market
It is that market in which shares, debentures and other securities are sold for the first time for collecting long-term capital.
New issue market.
Flow of funds
Purpose
Secondary Market
The secondary market is that market in which the buying and selling of the previously issued securities is done.
Transactions
Purpose
eg:- If an individual has bought some security and he now wants to sell it, he can do so through the medium of stock exchange to sell or purchase through the medium of stock exchange requires the services of the broker presently, their are 24 stock exchange in India.
Risk in the Stock Market
Stock prices keep fluctuating over a wide range unlike the bank deposits or government bonds.
The efficient market hypothesis shows the effect of fundamental factors in changing the price of the stock market.
The Efficient Market Hypothesis shows that all price movements are random whereas there are plenty of studies that reflect the fact that there is a specific trend in the stock market prices over a period of time.
Research has shown that there are certain psychological factors that shape the stock market prices.
CAPITAL MARKET INVESTMENT
Capital market investment takes place through the bond market and the stock market.
The capital market is basically the financial pool in which different companies as well as the government can raise long term funds.
Capital market investment that takes place through the bond and the stock market may be elucidated in the follow
Capital Market Investments in the Bond Market
The bond market is a financial market where the participants buy and sell debt securities.
The bond market is also differently known as the debt, credit or fixed income market.
There are different types of bond markets based on the different types of bonds that are traded. They are:
Corporate,
Government and agency,
Municipal,
Bonds backed by mortgages & assets,
Collateralized Debt Obligation.