Efficient Capital MarketAn efficient capital market is a market where the share prices reflect new information accurately and in real time. Capital market efficiency is judged by its success in incorporating and inducting information, generally about the basic value of securities, into the price of securities. This basic or fundamental value of securities is the present value of the cash flows expected in the future by the person owning the securities
The fluctuation in the value of stocks encourage traders to trade in a competitive manner with the objective of maximum profit. This results in price movements towards the current value of the cash flows in the future. The information is very easily available at cheap rates because of the presence of organized markets and various technological innovations. An efficient capital market incorporates information quickly and accurately into the prices of securities
In the weak-form efficient capital market, information about the history of previous returns and prices are reflected fully in the security prices; the returns from stocks in this type of market are unpredictable.
In the semistrong-form efficient market, the public information is completely reflected in security prices; in this market, those traders who have non-public information access can earn excess profits. In the strong-form efficient market, under no circumstances can investors earn excess profits because all of the information is incorporated into the security prices.
The funds that are flowing in capital markets, from savers to the firms with the aim of financing projects, must flow into the best and top valued projects and, therefore, informational efficiency is of supreme importance. Stocks must be efficiently priced, because if the securities are priced accurately, then those investors who do not have time for market analysis would feel confident about making investments in the capital market. Eugene Fama was one of the earliest to theorize capital market efficiency, but empirical tests of capital market efficiency had begun even before that.
Capital Market RegulationsRegulations are an absolute necessity in the face of the growing importance of capital markets throughout the world. The development of a market economy is dependent on the development of the capital market. The regulation of a capital market involves the regulation of securities; these rules enable the capital market to function more efficiently and impartially.
A well regulated market has the potential to encourage additional investors to partake, and contribute in, furthering the development of the economy. The chief capital market regulatory authorities worldwide are as follows: U.S. Securities and Exchange Commission Canadian Securities Administrators, Canada Australian Securities and Investments Commission Securities and Exchange Commission, Pakistan Securities and Exchange Board of India Securities and Exchange Commission, Bangladesh Securities and Exchange Surveillance Commission
Securities and Futures Commission, Hong Kong Financial Supervision Authority, Finland Financial Supervision Commission, Bulgaria Financial Services Authority, UK Comision Nacional del Mercado de Valores, Spain Authority of Financial Markets The United States Securities and Excha
The United States Securities and Exchange Commission (SEC), established in 1934, has the responsibility of regulating and controlling the securities industry/stock market, and enforcing the federal securities laws.
Public companies have to keep in compliance with the statutory requirements by submitting quarterly and annual reports to the SEC; companies involved in fraudulent activities are brought to task. These submitted reports are essential, as investors require them in order to make crucial decisions before investing in the capital market
The Canadian Securities Administrators (CSA) is responsible for the development of the Canadian Securities Regulatory System and regulates the capital market of Canada, protecting investors from fraudulent and nefarious activities. The CSA looks to establish a just, clear and dependable capital market system.
Capital Market LiberalizationCapital market liberalization, a result of globalization and trade liberalization, refers to the relaxation of government restrictions in the market. Not only government entities, but also private entities participate its functioning, and investors around the world are able to invest in the shares and bonds of other countries.
Worldwide economies, particularly in the developing countries, are opening their doors to foreign investments and capital, enhancing global competitiveness. Unbound circulation of goods and services within and between countries results in an increase in the circulation of money, causing a positive effect on the capital market.
Non-tariff and tariff trade barriers are eliminated, and avoidable legislations and taxes are not imposed as a result. Not only do parties involved in a trade stand to benefit from the effects of liberalization, but gains in productivity and the maximization of the economy's general efficiency are also a result. As well as free access that can be had to the market's information, there is a complete absence of policies that hamper trade and labor, and capital is allowed free flow under the liberalized market.
For a long period of time, the development of open capital markets has been a prerogative worldwide and several economies have made huge developments by opening up their markets. The whole capital market has now become a global common market, with globalization ensuring hassle free imports and exports. Corporations and companies are able to receive external investments and, along with individuals, can gain access to foreign goods and services.
Capital Market ServicesCapital market denotes the market where securities are traded. This market is further divided in several types known as debt capital market and equity capital market. The capital market services provide the investors with the opportunity to enter in this market without any real problem. This market has the potential to produce high yields and at the same time, this market can also produce high risk factors
There are several companies involved in providing the capital market services to the investors. The main services that are provided by these companies are stock broking services and consultancy services. Today, most of the equity capital market trades are done online. There are several companies that are providing these facilities to the investors.
Again, the stock broking services which are provided by many companies are of immense use for a large number of investors and especially the newcomers need these services for their own sake. The stock broking firms help the investor to select the appropriate stocks which is the primary condition of this market. These brokers also help the customers to make their investment portfolio in such a manner that the portfolio can adjust itself with the sudden changes of the market.
At the same time there are certain software companies that are providing capital market services to the investors, but in a different manner. Actually these software companies help the online companies to make their services much easier and smooth. At the same time, the software companies are also concerned about adding extra amount of pace in the process because speed alone can emerge as as decisive factor in the capital market
Again there are a number of online portals which are providing capital market services to the investors. These portals are providing all the latest information and changes regarding the market. These information are very important from the investors point of view because constant update of information regarding the market can help an investor to raise his profits and at the same time, it also helps the investor to reduce the risk factor.
Capital Market ResearchCapital market research is an essential activity for companies because it enables them to provide products and services that are useful for the targeted consumers. Such a focused and logical approach enhances the profit making possibilities of companies. The companies can earn more dividends and at the same time minimize risks as a result of research on capital markets.
One big advantage of capital market research is establishment of proper communication between the companies and the customers. The customer reactions to various services provided by the companies can be measured as a result of capital market research. The companies can thus do away with wrong policies and look to take the right steps
The companies can also locate the right opportunities through market research. If the company undertakes capital market research before launching a new product or service then it stands a better chance of getting a good return.
Risk minimization is another reason for undertaking capital market research. Through this research, the exact needs of the market and the general public can be gauged and the products and services can be made very demand oriented. The companies can also analyze whether they are making progress in the right direction
Capital market research should be done as early as possible in order to avoid problems in the future. Before investing in the stock market, stock market research needs to be undertaken. Research involves finding the companies and stock prices that would best suit the financial situation of the investor
The company profile needs to be studied and the size of the company is another important parameter of stock market investment research. Gathering information on the history of the company is another facet. Its history of profits and popularity and its performance in the past must be analyzed before investing in the shares of that company.
Research on the products and services of various companies is also very important. Investments should be made for the long term. This minimizes risk and increases profitability. Lastly, investment should be made wisely and regularly and this results from a good capital market research.
Secondary Capital Market
The secondary capital market deals with those securities that are already issued in an initial public offering in the primary market. Typically, the secondary markets are those where previously issued securities are purchaseIn the secondary capital market, the securities are generally sold by and transferred from one investor to another. Hence, the secondary capital market needs to be highly liquid in nature.hased and sold.
A high transparency for the secondary market trading is also required. With the advancement of the technology, the trading concept in secondary market has changed substantially. In the earlier days, the investors needed to meet at fixed place in order to carry out the transactions. But now trading in secondary capital market has become much easier for the investors.
The capital market handles the trading of stocks and bonds. The secondary bond markets play a market place for the bonds that are already issued in the primary market while the secondary stock market trades those stocks that are already issued by the issuers. The treasury bills secondary market handles the trading of treasury bills.
The secondary market trading is vital for the capital market. A study in the secondary market trend can give some information on the investor's preference for liquidity. It means whether the investors want to invest their money for a short period of time or a longer period.
It has been seen that the investors in the capital market do not prefer to put their money for the long term investments. But the secondary market investors, however, can compensate their investments with proper strategy.
The secondary market value of a stock or a bond is different from their face value. This happens due to the fluctuating interest rates. The resale value of the bonds in the secondary market is based on the interest rates at that very time when the sale goes through. In a typical secondary market, when the interest rate falls, the bond value goes up while when the rate rises, the bond value goes down.
Capital market trends can be sub-divided into primary, secondary (short-term), and secular (long-term) trends. A technical analysis assumes the fact that movements of market prices follow a particular trend. They are periods when buyers consistently outnumber sellers; in other words, the bulls outnumber bears.
Primary trends include bull markets and bear markets. The bull market is a situation where investors buy in order to increase capital gains in the future. In a bear market, on the other hand, the investors anticipate losses and therefore they are obliged to sell. Price fluctuation is an important tendency of an open market. The Gross Domestic Product(GDP) and stock prices are on the rise during a bull market. A bear market exhibits negative trends; it can also be a prelude to recession.
Secondary market trends refer to price changes within a primary trend. These price changes are not permanent. A temporary decrease in price during a bull market is a correction. During correction, the price drop is normally 10% to 20%. The same percentage increase is experienced during the time of a bear market rally. This refers to a transient increase in price during the time of a bull market.
Secular market trends are long-term. They usually remain for a period of five to twenty five years. Many primary trends sequentially arranged result in a secular market trend. In such case, the bull markets are bigger and a bear market does not erase the gains of the previous bull market. In secular bear markets, the duration of a bull market is smaller.
Capital Market Reform
Capital market reform enables the capital markets to embrace new ideas and techniques affecting the capital market. Capital market liberalization is one such capital market reform that is adopted by various countries to strengthen their economy.
A capital market is a place that handles the buying and selling of the securities. This is the ideal place where both the governments and companies can raise their funds. The capital markets of all the countries have undergone a number of reforms in the history. Economic theories are made and implemented to reform the functionalities of the capital market. The prime objective behind all the policies and reforms was obviously to strengthen the capital market of a particular country as much as possible.
It has been always a big question to the economists whether to allow or not to allow the foreign investments in the country. Packaged with both advantages and disadvantages, the liberalization of the capital markets has always been controversial. In the 1980s and 1990s when the US Treasury and International Monetary Fund (IMF) tried to push world-wide capital-market liberalization, there had been enormous opposition. Economists were not in the support of free and unfettered markets.
Now, when the capitalist countries, developing capitalist countries, underdeveloped countries and a large number of socialist countries have nodded their support to the capital market reform and capital market globalization, the global capital market has evolved in a new identity. The concept of capital market is not restricted to the share and bond trading in the developed capitalist countries only but is equally influenced by the capital markets of developing and underdeveloped countries as well.
Now the economic or financial change in one country can affect the capital market of other country in real time. Almost all the countries are now exposed to the inter-country trades and inter-country investments. The use of internet and electronic media has added some more feasibility to the practice. Exchange of information is fast and accurate with internet. Another advantage of this system is that it brings the entire world in a single place. The capital market is one of the industries that enjoy the maximum facility of the internet service.
Capital Market InvestmentThe capital market investment makes the investors to buy or sell securities in the capital markets. The stock market and bond market are types of capital markets where investors can trade in stocks and bonds. The investments in the capital market may be either in the bonds or stocks.
Investments in the stocks or bonds may be either investing in the new issues or in the existing securities. The primary capital market handles the trading and investments in the new issues while the secondary capital market takes care of the trading of existing securities. There are a number of financial regulators that monitor the capital market dealings in order to protect the investors from fraud. U.S. Securities and Exchange Commission is one such financial regulator that regulates the capital markets situated in their designated countries for the best interest of the investors
Stock InvestmentThe investment in stocks may in six different styles. Depending on the needs and reasons of the investors, the efficiency of the investment is estimated. There are some investors who depend on the advice of other people while purchasing or selling a particular stock.
There are technical investors who spend time in studying the stock patterns before trading any stock. The economist investors take their decision of stock trading depending on the economic forecasts. They are in the nature to take risks and get benefited in return following an efficient market hypotheses. There are some other types of investors who rely on the information given by the researchers, vendors and trade executives to make investment in the stocks
There are value investors who try to value the stock independently of its market price. Finally, there are conscious investors who depend on their own measurements and beliefs while making any stock investment. Bond Investment
Bond InvestmentBond investment is different from that of stock investment. Bond investment is investing in the debt instrument that is issued by a company or government. The bond investor is actually lending money to the company while in return is promised to be paid the full principal amount plus a fixed periodic payout. The yield on the bond is calculated by putting together the final principal and total payouts received. The yield is the effective interest rate for the tenure of the bond.
Capital Market AssumptionsAsset allocation is one of the most important decisions related to investment in the capital market. There are a number of risk factors related to these investments, and because of this appropriate capital market analyses are necessary. There are firms which provide capital market investment solutions to investors, each making their own risk and return calculations, or capital market assumptions.
These assumptions are followed strictly when making suggestions to the clients regarding the asset allocation. Many companies also provide their clients with their capital market assumptions so that the clients can evaluate their own investment decisions
Of course, capital market assumptions cannot be permanent and thus need to be changed from time to time. The market prices of different investment instruments change very rapidly, and with this rapid change the level of risk also changes. Different consultation companies use different techniques to get their perfect capital market assumptions. However, most companies concentrate on valuations because they can provide the most accurate capital market assumptions for the future.
Other factors useful in making capital market assumptions are the ratio between the price and earning of the particular asset, the dividend yield, the interest rates, and the growth rate of the assets.
Apart from the internal factors of the capital market, there are also macroeconomic trends that are related to making capital market assumptions. These include the level of inflation, changes in the Gross Domestic Product (GDP), and increases or decreases in the unemployment rate. International external factors related to the capital market which play a major role in shaping capital market assumptions too include taxation, foreign denominations, and decisions of national regulators.
Capital Market TransactionsThe capital market transactions are made while trading in the capital market securities. Stocks and bonds are the two types of securities where the capital market investments are done. Capital market transactions are monitored by the financial regulatory bodies.
A typical capital market includes the trading of securities. This is also the ideal market place for the companies and governments to raise funds. There are financial regulatory bodies in every country that monitor and regulate the capital market transactions in order to protect the investors from being cheated.
U.S. Securities and Exchange Commission, Australian Securities and Investments Commission, Canadian Securities Administrators, Financial Services Authority (UK) and Securities and Exchange Board of India are some of the major financial regulators that regulate the capital market transactions in their respective countries.
The investment in the capital market can be done either in the new issues or in the existing securities. The primary capital market controls the new issue transactions while the secondary capital market takes care of the trading of the existing securities. The corporations, banks or governments release stocks and bonds in the capital market in order to raise the long-term funds. The individual investors, companies, agencies and corporations can invest in these stocks and bonds either by purchasing or selling them.
The trading of stocks and bonds in the capital is not easy for the novice and not even for the seasoned investors. Its difficult to predict the trends of a capital market. Every investor wants to play safe with their investments. There are financial advisers available to guide the investors telling them where to invest and where not to. There are stock brokers also who are experienced and eligible to guide people with stock and bond investments.
The capital market transactions are done by the brokers who are registered with the exchange to carry out the trading on behalf of their clients. Any individual cannot just walk in the stock exchange and invest on the stocks or bonds. He must have to go through the brokers in order to make any kind of transaction in the capital market.
Capital Market Risk
The capital market risk usually defines the risk involved in the investments. The stark potential of experiencing losses following a fluctuation in security prices is the reason behind the capital market risk. The capital market risk cannot be diversified.
The capital market risk can also be referred to as the capital market systematic risk. While an individual is investing on a security, the risk and return cannot be separated. The risk is the integrated part of the investment. The higher the potential of return, the higher is the risk associated with it. The examination of the involved in the capital market investment is the one of the prime aspects of investing. It can be easily said that the risk distinguishes an investment from the savings.
The systematic risk is also common to the entire class of liabilities or assets. Depending on the economic changes the value of investments can fall enormously. There may be some other financial events also impacting the investment markets. In order to give a check to the capital market risk, the asset allocation can be fruitful in some cases. Any investment in stocks or bonds comes with the following types of risks. Market Risk Industry Risk Regulatory Risk Business Risk
The market risk defines the overall risk involved in the capital market investments. The stock market rises and falls depending on a number of issues. The collective view of the investors to invest in a particular stock or bond plays a significant role in the stock market rise and fall. Even if the company is going through a bad phase, the stock price may go up due to a rising stock market
While conversely, the stock price may fall because the market is not steady even if the investors company is doing well. Hence, these are the market risks that the stocks investors generally face.
The industry risk affects all the companies of a certain industry. Hence the stocks within an industry fall under the industry risk. The regulatory risk may affect the investors if the investors company comes under the obligation of government implemented new regulations and laws. The business risk may affect the investors if the company goes through some convulsion depending on management, strategies, market share and labor force.
Capital Market ConditionsThe capital market conditions are influenced by the rise and fall of the stock market and bond market. Other than the financial condition of the economy, capital markets are also influenced by various other external factors.
The capital market deals with the buying and selling of securities including stocks and bonds. The capital market conditions largely depend on the prices of stocks and bonds. There are various risks involved in the capital market investment that affect the capital market conditions. The capital market risks, also termed as systematic risks, can be either market driven, industry driven or business driven.
The risks may affect the stock and bond prices gravely. The capital market investors always need to be aware of the various factors that affect the capital market conditions.
The economists suggest that behavior of the capital market also largely depends on the whims of the investors. The investors may temporarily pull the stock prices resulting over-reaction in the financial market. The excessive optimism, or also known as euphoria, may thus pull up the stock price unduly high. On the other hand, excessive pessimism may also drive the stock price to the lowest.
In order to improve the liquidity and transaction feasibility, the capital markets undergo innovations and experiments. The major contribution of the capital markets to the financial markets is to raise the capital. The corporations, companies, banks and governments issue stocks and bonds in order to raise funds.
The capital market plays the base market for this. The conditions of capital market influence the overall condition of the financial market. While the fluctuation of stocks and bonds prices affect the conditions in capital market, the vise versa is also true. Depending on the condition of the capital market, the trading trends of the stock markets and bond markets may also vary.
The capital markets may be either primary market or secondary market. On one hand when the primary market deals with the newly issued securities, the secondary market trades the securities that have already been issued. The overall market trend of issuing the securities also affects the capital market conditions heavily.
Role of Capital MarketThe primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a platform for the trading of securities. This fundraising is regulated by the performance of the stock and bond markets within the capital market. The member organizations of the capital market may issue stocks and bonds in order to raise funds. Investors can then invest in the capital market by purchasing those stocks and bonds.
The capital market, however, is not without risk. It is important for investors to understand market trends before fully investing in the capital market. To that end, there are various market indices available to investors that reflect the present performance of the market.
Regulation of the Capital MarketEvery capital market in the world is monitored by financial regulators and their respective governance organization. The purpose of such regulation is to protect investors from fraud and deception. Financial regulatory bodies are also charged with minimizing financial losses, issuing licenses to financial service providers, and enforcing applicable laws.
The Capital Markets Influence on International TradeCapital market investment is no longer confined to the boundaries of a single nation. Todays corporations and individuals are able, under some regulation, to invest in the capital market of any country in the world. Investment in foreign capital markets has caused substantial enhancement to the business of international trade.
The Primary and Secondary Marketsthe capital market is also dependent on two sub-markets the primary market and the secondary market. The primary market deals with newly issued securities and is responsible for generating new long-term capital. The secondary market handles the trading of previously-issued securities, and must remain highly liquid in nature because most of the securities are sold by investors. A capital market with high liquidity and high transparency is predicated upon a secondary market with the same qualities.
Capital Market SecuritiesStocks and bonds are generally termed as the capital market securities. These are traded in separate markets. These capital market securities are used by a number of companies, corporations and governments to raise funds for various purposes. These funds are raised for long terms. There are the regulatory authorities in every country to supervise the capital market securities and their respective market.
The bond market is a part of the capital market and provides the opportunity to deal in the debt securities. Bond is the medium of dealing in the debt securities. As one of the capital market securities, bond enjoys a vast international market which is estimated around $45 trillion. A huge portion of this bond market transaction generally takes place in the over-the-counter market. On the other hand, the corporate bonds are listed on the exchanges
There are different types of bonds available in the market like the corporate bond, The municipal bond, the government bond and many more. Among all these capital market securities, the government bond is the most secured one. The government bond market is very big and its liquidity is also beyond comparison.
Another important capital market securities is known as stocks. These are preferred by the investors because an investor can get huge returns from this capital market instrument. The stock market is used for trading of company stocks, other securities and derivatives. $45 trillion is the estimated size of the global stock market. This market is used by the companies to raise funds for different purposes. At times, the governments also turn towards the stock market to generate funds.
The market participants include every kind of investor. There are both the individual investors and the institutional investors who are taking part in the market.
In the past, there were only the individual investors in the market but the market trend has completely changed and todays market is mainly dominated by the institutions which in turn, is increasing the volume of the market.
The investor should take proper care while selecting the capital market securities because the risk factor related to these securities are different. At the same time, the returns may also vary. So a proper research should be done before investment.
Capital Market LineThe capital market line (CML) is a kind of graph, originating from the capital asset pricing model (CAPM). The CAPM is used to confirm a theoretically-suited necessary rate of return on an asset when it is about to be added to an existing and well-performing portfolio.
The CML is used to determine the rate of return for certain efficient portfolios. This analysis is dependent upon the risk-free rate of return and the amount of risk involved in a particular portfolio.
The Sharpe ratio, through certain calculations, represents the proportion of risk and extra return that a portfolio provides. The portfolio which has the highest Sharpe ratio is known as the market portfolio. Every portfolio included in the market portfolio is optimized for a certain amount of risk. The amount of risk related to the particular asset is considered with importance.
According to the CAPM, the market portfolio represents the efficient frontier. The efficient frontier can be defined as an ingathering of portfolios. The market portfolio, when combined with the risk-free asset, is capable of producing a higher return than the efficient frontier
The combination of the market portfolio and the risk-free asset gives birth to the CML. Experts tend to prefer CML over the efficient frontier because the CML considers the addition of a risk-free asset in the portfolio.
Venture Capital Market
Venture capital is an age old concept but the venture capital market has developed in the recent decades. The term venture capital denotes the act of investment in the areas of high risk, in order to get some high returns
The developments in the venture capital market has taken place in the US markets mainly. The market of venture capital, in the past, was disconnected and may be identified as an individualized to some extent. In the recent times only, the market has been shaped and the market became matured.
Venture capital markets are like boons for Those who wants to set up new business. At the same time, if an existing business wants to develop, the venture capitalists are there to provide financial assistance. These capitalists have their own business interest behind the assistance
These people wants to have a share of the huge profits by the business in the future. Because of this, only those businesses are selected which are supposed to develop rapidly in the future. For the purpose, the venture capitalists have their own team of people to identify the appropriate opportunities.
The modern concept of venture capital should be grateful to General Doriot because he was the person who founded the American Research and Development Fund. This was done to provide financial assistance to the activities of developing new technologies in the US universities. At the same time, the commercial use and financial benefits from such technologies were also considered seriously.
With the commercial success of the concept of venture capital, big players entered the venture capital market of United States of America. The giant companies like Xerox and General Electric played a major role in expanding the venture capital market
The entry of these companies in this market encouraged with separate divisions to deal in the market, encouraged many others. Because of these situations, the venture capital market was expanded beyond the territories of US and within a short period, it gained ground globally.
Debt Capital MarketDebt capital market and equity market jointly makes the capital market. These markets are used by the governments and several companies for raising funds for long and short term. The trade in these markets are done through several financial instruments.
The debt capital market trades in such financial instruments which pays interest. There are the bonds and several loans which acts as the prime financial instrument of this market.Because of these interest factor, the debt capital market is also known as fixed income market.
Bonds are of several types like the government bonds, the municipal bonds, corporate bonds and many more. By investing in these bonds, the investors actually provide loan to the respective organization or to the government. These loans are provided for some fixed interest rate which the company or the organization provides to the investor at regular intervals.
The modern concept of venture capital should be grateful to General Doriot because he was the person who founded the American Research and Development Fund. This was done to provide financial assistance to the activities of developing new technologies in the US universities.
The giant companies like Xerox and General Electric played a major role in expanding the venture capital market. The entry of these companies in this market encouraged with separate divisions to deal in the market, encouraged many others. Because of these situations, the venture capital market was expanded beyond the territories of US and within a short period, it gained ground globally.
Equity Capital MarketThe equity capital market is an important part of the capital market. In this market, companies and financial institutions raise funds and provide equities using the shares of their own businesses. Investors invest in the company by purchasing the shares or equities
Company stocks are the prime financial instrument of the equity capital market. This instrument is provided and maintained by the companies or the financial institutions themselves. The reputation of the stocks in the equity capital market is largely dependent on the companies themselves, because the it is maintained by different types of financial data provided by the companies.
The provided data helps the investor understand the present position and the future of the company in the equity capital market. When the investor is satisfied, he or she makes the investment and the money grows with the company. In certain situations, the result may not be beneficial to the investor. The companies also provide regular dividends to these investors.
Participants in the equity capital market range from huge companies to small individual investors. In the past, wealthy individuals dominated the market, but market trends are different now. The introduction of institutional investors has improved the market, and today they are playing the dominant role.
In addition to different types of company stocks, the equity capital market provides financial instruments known as derivatives. Futures, swaps and options are among these derivatives. The value of these instruments derives from the equities themselves.
The equity capital market and the debt capital market together form the capital market. The primary difference between the equity capital and debt capital markets is the amount of risk and return related to them. The equity capital market is known for its huge returns and its high risks. On the other hand, the debt capital market is far more secure than the equity market but the returns are low.
Major Capital Market CompaniesMajor capital market companies of the world are doing a flourishing business. Many investment banking and brokerage companies provide capital market services to their clients. Wanchova Securities provides top class capital market services
This company provides corporate advisory services, private capital, advice on acquisitions, risk management services, equity investing, asset and mortgage backed securities, and underwriting services. Genuity Capital Markets is a private firm providing capital market services independently in Canada. The investment banking services of this company includes facilitating acquisitions and mergers, providing financial restructuring services and dishing out corporate finance
Private Capital Market Corporation facilitates services like venture capital financing, growth financing, recapitalizations, business sales, private placements, and management buyouts. This investment bank is registered with the Ontario Securities Commission. The firm works in close collaboration with their clients in order to satisfy their financial needs.
Viteos Capital Market Services processes securities and provides various fund services. Intermediaries in the capital market like asset managers, investment banks, brokers, and financial information service providers benefit from the services of this company.
NCB Capital Markets specializes in wealth and asset management services. This Jamaican company provides products and services like mutual funds, bonds, stocks, and wealth access. Investors in the stock market having long term and medium term goals can benefit from the services of this company.
Another of the major capital market companies is Louis Capital Markets. This brokerage firm has an enviable global footing. This company was established in New York in 1999. Cash equity, research, and execution of commodities and foreign exchange business are the chief concerns of this company
Samco Capital Market is an investment bank established in 1987. This company has expertise in corporate finance, bank development, municipal finance, and securities securities. The company also trades in fixed income securities. The consultation services on mortgage buying provided by the company are of the first order. ORIX Capital Markets is owned by ORIX USA Corporation. They have products like asset backed securities, synthetic credit products, structured real estate and financing transactions, and high yield municipal securities. Some other important capital market companies are Loop Capital Markets, SBI Capital Markets, and PNC Capital Markets.
Global Capital MarketThe global capital market is gaining depth everyday. Along with the development of this market, the liquidity is also growing at a rapid pace. Several surveys have shown that financial stocks are growing worldwide and their growth rate is much higher than that of global gross domestic products.
Capital market represents the securities market where stocks, bonds, and several other derivatives are traded, and both long and short-term debts are raised here. This market provides companies, as well as governments with necessary funding, and, simultaneously, grants investors with the opportunity to make regular income.
The development of the global capital market can also be traced by the fact that the financial holdings of the world is growing quickly- it is estimated to be somewhere around $140 trillion, and this amount is expected to cross the $200 mark before the end of 2010.
With the emergence of the concept of globalization, the diversified world market has been transformed into a single market, which has resulted in the promotion of inter-country trade. Because of this, there has been an increase in stature and an increase in capital flow, of which the United States of America, Europe and Britain share almost 90%.
In these circumstances, the US is playing a vital role in the development of the global capital market and, alone, is the destination of 85% of the net capital flow of the entire globe. Britain also plays a significant role in the market. On the other hand, because of the rapid transformation of the Eurozone, its emergence as a financial power is causing positive changes. This could shift the pillars of the world economy, as the Eurozone is expected to soon stand on the same financial platform with its counterparts.
Primary Capital MarketThe capital market is divided in two different markets. These are the primary capital market and secondary capital market. The primary capital market is concerned with the new securities which are traded in this market. This market is used by the companies, corporations and the national governments to generate funds for different purpose.
The primary capital markets is also called the New Issue Market or NIM. The securities which are introduced in the market are sold for first time to the general public in this market. This market is also known as the long term debt market as the money raised from this market provides long term capital.
The process of offering new issues of existing stocks to the purchasers is known as underwriting. At the same time if new stocks are introduced in the market, it is called the Initial Public Offering. The act of selling new issues in the primary capital market follows a particular process. This process requires the involvement of a syndicate of the securities dealers. The dealers who are running the process get a certain amount for as commission. The price of the security offered in the primary capital market includes the dealer,s commission also.
Again, if the issue is a primary issue, the investors get the issue directly from the company and no intermediary is needed in the process. For the purpose, the investor needs to send the exact amount of money to the respective company and after receiving the money, the particular company provides the security certificates to the investors.
The primary issues which are offered in the primary capital market provide the essential funds to the companies. These primary issues are used by the companies for the purpose of setting new businesses or to expanding the existing business. At the same time, the funds collected through the primary capital market, are also used for the modernization of the business.
At the same time, the primary capital market is also involved in the process of creating capital for the respective economy. There are three ways of offering new issues in the primary capital market. These are: Initial Public Offering Preferential Issue. Rights Issue (For existing Companies)