• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Penpoin

Better knowledge. Sharper Insight.

  • Management
  • Economics
  • Finance
Investment

Capital Markets: Meanings, Intruments, Importance

Updated on February 24, 2019 · By Ahmad Nasrudin Tag: Financial Market

Capital Markets Meanings Intruments Importance 1
You are here: Home / Finance / Investment / Capital Markets: Meanings, Intruments, Importance

Capital markets are financial markets for long-term financial instruments. New York Stock Exchange, NASDAQ Stock Market, Tokyo Stock Exchange, Shanghai Stock Exchange, Hong Kong Stock Exchange, Euronext, London Stock Exchange, are among the top examples. Investors stocks and debt in this market.

Advertisement

Through this market, businesses raise funds to finance their capital investment. Money comes from various investors such as pension funds, insurance companies, hedge funds, asset managers, and even individuals.

Capital market instruments

Two broad category instruments are debt securities and stock securities. Debt instruments represent liabilities, while stocks represent ownership.

But, from the two instruments, there are many variations, such as government bonds, corporate bonds, medium-term notes, exchange-traded funds, and mutual funds.

Is the capital market the same as the financial market?

The capital market is one of two types of financial markets. Others are financial markets. Both form what we call financial markets.

Both are different in terms of the orientation of the use of funds. Financial markets facilitate short-term funding needs, while capital markets are long-term. Examples of instruments in the money market are treasury bills, commercial paper, bankers’ acceptances, certificates of deposit, repurchase agreements, and bills of exchange.

Companies, for example, use funds from the money market for operational costs and to meet liquidity, for example, to pay customers or employees. Meanwhile, they raise funds from the capital market for investment in EIA assets (such as buying machinery or building factories), which are expected to generate economic benefits of more than one year

How the capital market works 

It’s just that capital market trading does not trade goods but proof of ownership or liability, which at present is mostly paperless.

Advertisement

Demand-supply of funds meets and transact in the capital market. Companies and governments represent the demand side. They need funds for investment. 

Meanwhile, investors represent suppliers of funds. Various types of investors are in the capital market, including individuals, insurance companies, pension funds, banks, and foundations.

For instance, when a company needs to build a new factory and has a little internal capacity, it can raise money from the capital market. The company then issues shares or debt securities.

When investors buy bonds or shares, money moves from investors to the company. As compensation, investors obtain ownership (stocks) or claims (debt securities) of the company’s assets. 

For stock investors, the potential return comes from dividends and the potential profit from rising stock selling prices (capital gains). Meanwhile, for bond investors, they potentially receive periodic coupons and also capital gains.

Today, trade is almost always hosted on a computer-based electronic trading platform. Various private companies also provide browser-based platforms, which allow individuals to buy shares in the secondary market.

Importances

The capital market facilitates a more efficient demand-supply of funds in the economy. It finds investors who have funds and companies that need funds. In the secondary market, securities holders can trade with each other at market prices.

The capital market supports a more efficient capital allocation in the economy, facilitating a country’s economic growth. Through the capital market, savers channel their wealth to those who can use it for long-term productive use, such as companies or governments. As compensation, they receive returns in the form of dividends, capital gains, and coupons.

Advertisement

The company uses these funds to increase production capacity. Capital investment usually requires significant funds, which often cannot be met with internal cash. Therefore, the capital market is a good option for collecting. That way, the company’s financial performance is not overburdened as well as the company can seize opportunities for long-term growth.

Tag: Financial Market

Economic Growth and Economic Development: Their Differences and Relationships

Economic growth has a close relationship with economic development. We need economic growth to support

Economic Growth: Factors, Importance, Impacts, How to Measure It

Economic growth refers to an increase in output in an economy over time. It can be short term or long term. In the short

Gini Coefficient: Meaning, Calculation Method, Data, Pros, and Cons

What's it: Gini coefficient is a statistic of economic inequality in a society. It tells you the distribution of income

Advertisement

Needs: Definition, Example, Type

What's it: Needs means requiring something because it is essential. For example, we need food, water, and shelter

Wants: Definition and Examples

What's it: Wants are hopes to have or fulfill something. If we want something, we expect to be able to buy it and

Venture Capital: How It Works, How It Makes Money, Investment Horizon

What's it: Venture capital is capital invested in a new company, startup, or young company, in return for

Leveraged Buyout (LBO): How it Works, Funding Sources, Criteria for Target 

What's it: A leveraged buyout (LBO) is an acquisition with debt relied upon to finance the purchase. This strategy

Investment

Capital Markets: Meanings, Intruments, Importance

Updated on February 24, 2019 · By Ahmad Nasrudin Tag: Capital Market, Financial Market

You are here: Home / Finance / Investment / Capital Markets: Meanings, Intruments, Importance

Capital markets are financial markets for long-term financial instruments. New York Stock Exchange, NASDAQ Stock Market, Tokyo Stock Exchange, Shanghai Stock Exchange, Hong Kong Stock Exchange, Euronext, London Stock Exchange, are among the top examples. Investors stocks and debt in this market.

Advertisement

Through this market, businesses raise funds to finance their capital investment. Money comes from various investors such as pension funds, insurance companies, hedge funds, asset managers, and even individuals.

Capital market instruments

Two broad category instruments are debt securities and stock securities. Debt instruments represent liabilities, while stocks represent ownership.

But, from the two instruments, there are many variations, such as government bonds, corporate bonds, medium-term notes, exchange-traded funds, and mutual funds.

Is the capital market the same as the financial market?

The capital market is one of two types of financial markets. Others are financial markets. Both form what we call financial markets.

Both are different in terms of the orientation of the use of funds. Financial markets facilitate short-term funding needs, while capital markets are long-term. Examples of instruments in the money market are treasury bills, commercial paper, bankers’ acceptances, certificates of deposit, repurchase agreements, and bills of exchange.

Companies, for example, use funds from the money market for operational costs and to meet liquidity, for example, to pay customers or employees. Meanwhile, they raise funds from the capital market for investment in EIA assets (such as buying machinery or building factories), which are expected to generate economic benefits of more than one year

How the capital market works 

It’s just that capital market trading does not trade goods but proof of ownership or liability, which at present is mostly paperless.

Advertisement

Demand-supply of funds meets and transact in the capital market. Companies and governments represent the demand side. They need funds for investment. 

Meanwhile, investors represent suppliers of funds. Various types of investors are in the capital market, including individuals, insurance companies, pension funds, banks, and foundations.

For instance, when a company needs to build a new factory and has a little internal capacity, it can raise money from the capital market. The company then issues shares or debt securities.

When investors buy bonds or shares, money moves from investors to the company. As compensation, investors obtain ownership (stocks) or claims (debt securities) of the company’s assets. 

For stock investors, the potential return comes from dividends and the potential profit from rising stock selling prices (capital gains). Meanwhile, for bond investors, they potentially receive periodic coupons and also capital gains.

Today, trade is almost always hosted on a computer-based electronic trading platform. Various private companies also provide browser-based platforms, which allow individuals to buy shares in the secondary market.

Importances

The capital market facilitates a more efficient demand-supply of funds in the economy. It finds investors who have funds and companies that need funds. In the secondary market, securities holders can trade with each other at market prices.

The capital market supports a more efficient capital allocation in the economy, facilitating a country’s economic growth. Through the capital market, savers channel their wealth to those who can use it for long-term productive use, such as companies or governments. As compensation, they receive returns in the form of dividends, capital gains, and coupons.

Advertisement

The company uses these funds to increase production capacity. Capital investment usually requires significant funds, which often cannot be met with internal cash. Therefore, the capital market is a good option for collecting. That way, the company’s financial performance is not overburdened as well as the company can seize opportunities for long-term growth.

Tag: Capital Market, Financial Market

Human Development Index: Indicators, Ranking, Benefits, Limitations

What's it: Human Development Index (HDI) is an indicator that tells you the country's social and economic development.

Economic Development: Meaning, Goals, and Stages

What's it: Economic development refers to the progress of an economy in terms of quality. It's not just about

Income Distribution: How to Measure and Overcome Inequality

What's it: Income distribution is about how the income or wealth of the economy is shared among its citizens. It is

Advertisement

Intrapreneur: Meaning, Characteristics, Differences with Entrepreneur

Who's it: An intrapreneur, or internal entrepreneur, is an entrepreneur who works within an organization. They are

Social Entrepreneur: Definition, Importance, Characteristics

Who's it: Social entrepreneurs are those who pursue business not to maximize their own profits but to maximize

Private Equity Structure and Fee

Private equity is usually structured as a Limited Partnership (LP) or Limited Liability Company (LLC). Under a

Private Equity: Examples, Strategies, Targets, Its Ways To Make Money

What's it: Private equity is an investment vehicle focused on buying shares of prospective private companies to

Primary Sidebar

TOPIC

Accounting and Finance Business and Strategy Financial Statements Human Resources Investment Macroeconomics Marketing Microeconomics Operation

Advertisement

LATEST POST

  • Private Equity Structure and Fee
  • Hedge Funds Strategy: Macro, event-driven, relative value, and equity hedge strategies
  • Leveraged Buyout (LBO): How it Works, Funding Sources, Criteria for Target 
  • Private Equity: Examples, Strategies, Targets, Its Ways To Make Money
  • Economic Growth and Economic Development: Their Differences and Relationships
  • Where Do Comparative Advantages Come From?

MOST POPULAR

  • Political Environment: Meaning, Examples
  • Business Size: Definition, Measurement, Classification
  • The Role of Business in Society and the Economy
  • Span of Control: Importance, Types, Advantages, Disadvantages
  • Government Intervention: Examples, Reasons, and Impacts
  • Trade Blocs: Meaning, Types, Pros, and Cons

Footer

SEARCH

POPULAR

  • Political Environment: Meaning, Examples
  • Business Size: Definition, Measurement, Classification
  • The Role of Business in Society and the Economy
  • Span of Control: Importance, Types, Advantages, Disadvantages
  • Government Intervention: Examples, Reasons, and Impacts

TOPIC

Accounting and Finance Business and Strategy Financial Statements Human Resources Investment Macroeconomics Marketing Microeconomics Operation

Copyright © 2023 · About Us  · Privacy Policy and Disclaimer  ·  Terms of Use  ·  Comment Policy  ·  Contact Us