Capital Market

What is a capital market?

A capital market is just a place wherein different financial instruments, such as stocks and debt securities, are traded between various businesses. Some organizations have access to a lot more capital than they need and some organizations need that capital to function. Capital markets serve as gateways for the exchange of savings and investments between buyers and sellers of capital.

How does the capital market work?

It is the market that businesses can use to meet their needs for long-term funding. The flow of funds in a capital market is primarily made up of personal and business savings, insurance savings, financial institutions like banks and NBFC, and the surplus from governments. The demand for long-term capital is primarily driven by the private sector's manufacturing companies, agriculture, trade, and government entities.

Different types of capital market

Primary Market

1. The primary market, often referred to as the new issue market, is where newly issued securities are first traded and are later made accessible to institutions and private consumers.
2. Support for both private and open offers is provided. To raise money and achieve its long-term objectives, an organization offers securities to the public.
3. In the primary market, this transaction is taking place between the investor and the original issuer.

Secondary Market

1. The reason it is termed secondary is that the stocks they have are old and have already sold on the primary market.
2. The parties to this primary market transaction are the investors and the initial issuer.
3. The stock exchange facility, the buyer, the seller, and themselves conduct the transaction.

Difference between capital and financial market

The primary distinction between the financial markets and the capital market is the length of the loan; however, capital markets focus on long-term lending. The key differences are stated below.

Capital Market

1. A capital market is a form of financial market where businesses or governments place long-term investments in securities like bonds, equities, etc.
2. The most common investor groups include stockbrokers, insurance providers, commercial banks, insurers, etc.
3. The capital market includes securities such as bonds, debentures, splits, asset secularization, retained earnings, etc.

Financial Market

1. In the financial markets, we can make short-term investments in securities including treasury bills, commercial paper, certificates of deposit, and trade credit.
2. The main investor classifications include commercial banks, non-financial entities, central banks, mutual funds, and so on.
3. The money market includes - commercial papers, treasury bills, trade credit, etc.