1. Capital Markets
Markets exist to facilitate the purchase and sale of goods and services. The financial
market exists to facilitate sale and purchase of financial instruments and comprises of
two major markets, namely the capital market and the money market. The distinction
between capital market and money market is that capital market mainly deals in
medium and long-term investments (maturity more than a year) while the money
market deals in short term investments (maturity upto a year).
Capital market can be divided into two segments viz. primary and secondary. The
primary market is mainly used by issuers for raising fresh capital from the investors
by making initial public offers or rights issues or offers for sale of equity or debt. The
secondary market provides liquidity to these instruments, through trading and
settlement on the stock exchanges.
Capital market is, thus, important for raising funds for capital formation and
investments and forms a very vital link for economic development of any country.
The capital market provides a means for issuers to raise capital from investors (who
have surplus money available from saving for investment). Thus, the savings
normally flow from household sector to business or Government sector, which
normally invest more than they save.
A vibrant and efficient capital market is the most important parameter for evaluating
health of any economy.
Functions of the capital market
The major objectives of capital market are:
• To mobilize resources for investments.
• To facilitate buying and selling of securities.
• To facilitate the process of efficient price discovery.
• To facilitate settlement of transactions in accordance with the predetermined