subject: What is Capital Market? [print this page] What is Capital Market? What is Capital Market?
The Capital Market is counted among the three major conventional markets in the monetary system of a state or a country. Apart from this market, the other two markets include insurance and money market. With the money market, people can make short-term investment. The capital market allows for long-term facilities. And the insurance market offers both the services to attain a constant and a sound financial system. Although "short-tem" or "long-tem" investments have not been specially defined still long-tem debts have standard maturity of one year and generally more than five years. On the other hand, short-term borrowing has maturity less than one calendar year.
The Capital Market has been categorized into two major parts, such as, Primary and Secondary markets.
PRIMARY MARKET: This part of capital market is intended for Initial Public Offer (IPO) and new issues of securities. No matter whether it is IPO or just a new issue, the objective in this market is to increase new funds. A wide variety of techniques are there regarding offer of securities dealt in the primary market. This technique of floatation is as follows:
Offer for Subscription: Here public are invited to subscribe to a new issue.
Offer for sale: Here a part of a company's shares or all shares are publicized by one of its shareholders by public invitation. You can take privatization issues as example of this kind of floatation. Here the seller(s) gets the profits of sales instead of the company.
Right issue: In this kind if floatation, invitations are sent to the existing shareholders of a company to subscribe to extra share i.e equities in proportionate to existing keepings. They are given at a lesser price than current market price.
Private placement: Public unquoted companies frequently hangout to private placement to raise funds from the capital market. Here the companies offer securities to select group of formerly identified investors instead of the general public.
Offer by Introduction: With this method, you can obtain a stock exchange quotation without undergoing a public offering of securities. Here the company has to use the services of a stockbroker who would help the company to get listed in Stock Exchange without making a public offering.
Secondary Market; Factors Influencing its Performance
In the secondary market, securities holders dispose off their keepings. Here the individual get the profits of sales rather than the corporate issuers of the securities. It works just like resale market.
The steady growth of the secondary market can be determined from many factors such as, renewal of bond market, enhancement in market infrastructure, Automated trading and settlement system, improved awareness through the enlightenment campaign and introduction of universal banking.
