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Efficient Capital Market

An 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
Regulations
Regulations 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
Liberalization
Capital 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 Services


Capital 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 Research


Capital 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 purchase
In 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
Investment
The 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 Investment
The 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 Investment
Bond 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
Assumptions
Asset 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
Transactions
The 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
Conditions
The 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 Market


The 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 Market


Every 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 Trade
Capital 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 Markets


the 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 Securities


Stocks 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 Line


The 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 wellperforming 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 Market


Debt 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 Market


The 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


Companies
Major 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 Market


The 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 Market


The 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)

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