Home Page                      Contact Us                      About Us                      Privacy Policy                       Terms of Use                      Advertise 

Home Economic Resources Capital Market


Capital Market:




The means by which large amounts of money (capital) are raised by companies, governments and other organizations for long term use and the subsequent trade of the instruments issued in recognition of such capital.




There are two types of financing/capital markets:


(1) Money Market.


(2) Capital Market. 


(1) Money Market:


Money market is the market for very short term loans. It mainly centers round its activities on the discount houses, the commercial banks. The money market, deals in various credit instruments such as, the bill of exchange, short dated bonds, certificate of deposits, the treasury bills, etc.


(2) Capital Market:


Capital market refers to a market where the financial institutions mobilize the savings of the people and lend them for long term, period for raising new capital in country. Capital Market, in other words, refers to the long term borrowing and lending of capital funds.


Capital Market Instruments:


The principal capital market instruments used for long term funds are:


(i) Mortgages.


(ii) Corporation bonds.


(iii) State and local government bonds.


(iv) Federally sponsored credit agency securities.


(v) Finance company bonds.


(vi) Commercial banks bonds and commercial paper.


(viii) Corporate stock.


Institutional sources of Capital Market:


There are a number of financial institutions which are directly involved with real investment in the economy. These institutions mobilize the saving from the people and channel funds for financing the development expenditure of the industry and government of a country.


The financial institutions take maximum care in investing funds in those projects where there is high degree of security and the income is certain. The main institutional sources of capital market are as follows:


(i) Insurance Companies. Insurance companies are financial intermediaries. They call money by providing protection from certain risks to individuals and firms. The insurance companies invest the funds in long term investments primarily mortgage loans and corporate bonds.


(ii) Pension Funds. The pension funds are provided by both employees and employers. These funds are now increasing utilized in the provision of long term loans for the industry and government.


(iii) Building Societies. The building societies are now activity engaged in providing funds for the construction, purchase of buildings for the industry and houses for the people.


(iv) Investment Trusts. The investment trust mobilize saving and meet the growing, need of corporate sector, The income of the investment trust depends upon the dividend it receives from shares invested in various companies. 


(v) Unit Trust. The Unit Trust collects the small savings of the people by selling units of the trust. The holders of units can resell the units at the prevailing market value to the trust itself. 


(vi) Saving Banks. The saving banks collect the savings of the people. The accumulated saving is invested in mortgage loans, corporate bonds.


(vii) Specialized Finance Corporation. The specialized finance corporations are being established to help and provide finance to the private industrial sector in the form of medium and long term loans or foreign currencies.


(viii) Commercial banks. The commercial banks are also now activity engaged in the provision of medium and long terms loans to the industrialists, agriculturists, specialist finance institutions, etc., etc.


(ix) Stock Exchange. The stock exchange is a market in existing securities (shares, debentures and securities issued by the public authorities). The stock exchange provides a place for those persons who wish to sell the shares and also wish to buy them. Stock exchange, thus helps in raising equity capital for the industry

Relevant Articles:

Economic Resources
Land as a Factor of Production

Labor as a Factor of Production

Entrepreneur as a Factor of Production
Division of Labor
Mobility of Labor
Capital as Factor of Production
Capital Formation

Capital Market


Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money

                   Home Page                Contact Us                About Us                Privacy Policy                Terms of Use                Advertise               

All the material on this site is the property of economicsconcepts.com. No part of this website may be reproduced without permission of economics concepts.
All rights reserved Copyright
2010 - 2015