Advantages Of Capital Market | Meaning, Instruments used

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Title: Advantages Of Capital Market

Discover in this hall as we look at Capital Market: The definition of Capital market, the instrument used in the capital market, institutions involved in the capital market and advantages of Capital market in economics.

See Also Money Market, meaning, Instruments used and advantages

Table Of Contents

  1. Definition of capital market
  2. Important of capital market
  3. Functions of capital market
  4. Instruments used in capital market
  5. Institutions in the capital market
  6. Advantages of capital market

CAPITAL MARKET

The capital market is a crucial component of economics, representing the platform where long-term investments and financial instruments are bought and sold

Definition: Capital market can be defined as a market for medium-term and long-term loans. The capital market serves the need of industry and the commercial sector. It comprises all the institutions which are concerned with either the supply of or demand for long-term capital.

Key Features in the capital market

  1. Long-term focus
  2. Securities traded: stocks, bonds, debentures, and derivatives
  3. Market participants: investors, corporations, governments, and financial institutions
  4. Market segments: primary (new issues) and secondary (existing securities)

Functions Of capital market

  1. Mobilizes savings for investment
  2. Facilitates risk management
  3. Provides liquidity
  4. Allocates resources efficiently
  5. Enables price discovery.

Importance of Capital Market

  1. Promotes economic growth
  2. Supports entrepreneurship
  3. Encourages foreign investment
  4. Enhances financial stability
  5. Provides opportunities for diversification

INSTRUMENTS USED IN THE CAPITAL MARKETS

There are two major instruments used in the capital market. These are:

  • Stocks
  • Shares

Stock and shares are the instruments used in the capital market and are securities purchased by individuals, which is an evidence of contributing part of the total Capital used in running an existing industry. At the end of a normal business year, stock and share holders receive dividend as a reward for contributing the money in running the business.

Institutions Involved in the Capital Market

Institutions involved in the capital market include:

  1. Issuing houses
  2. Insurance companies
  3. Development Banks
  4. Building societies
  5. National Provident fund (NPF)
  6. Stock exchange
Capital Market illustration in economics
Capital Market in economics

Advantages of Capital Market

The advantages of Capital Market are as follows:

  1. Provision of long-term loans: Capital market provides long-term loans to the private and public sector for investments.
  2. Mobilisation of savings: This is another advantages because Savings are mobilized in the capital market.
  3. Growth of merchant banks: This is another advantages of Capital markets. The existence of capital market helps the growth and development of merchant banks.
  4. General running of the economy: The existence of capital market encourages the general public to participate in the running of the economy of the country.

In conclusion: Note the very short definition of Capital Market which is: Capital market is a market for medium-term and long-term loans. Also note the Instruments used in capital market, institutions and advantages of Capital market.

Revision Questions

  1. Define capital market
  2. List the instruments used in the capital market
  3. List the institutions involved in the capital market.
  4. What are the advantages of capital market
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