Q. Examine the working of the Capital Market along with its various Instruments and Intermediaries.
Capital Market: Overview
The
capital market is a financial system where individuals, companies, and
governments raise long-term funds through financial instruments like stocks,
bonds, and other securities. It plays a crucial role in economic development by
facilitating efficient capital allocation. The capital market is broadly
divided into two segments: Primary Market (where new securities are
issued) and Secondary Market (where existing securities are traded).
1.
Equity
Instruments (Shares/Stocks)
o Common Shares:
Represent ownership in a company with voting rights but no fixed dividends.
o Preferred Shares:
Provide fixed dividends but usually lack voting rights.
2.
Debt
Instruments (Bonds & Debentures)
o Corporate Bonds:
Issued by companies to raise long-term funds.
o Government Bonds:
Issued by governments to finance public projects.
o Debentures:
Unsecured bonds backed by a company’s creditworthiness.
3.
Hybrid
Instruments
o Convertible Debentures:
Can be converted into equity shares after a specific period.
o Warrants: Give the
holder the right to buy shares at a predetermined price.
4.
Derivatives
o Futures and Options:
Contracts that derive value from underlying assets like stocks or commodities.
o Swaps: Agreements
to exchange financial instruments, commonly used for risk management.
Intermediaries in the Capital Market
1.
Stock
Exchanges
o Platforms like the NYSE, NASDAQ, and NSE facilitate the
buying and selling of securities.
2.
Regulatory
Bodies
o Securities and Exchange Commission (SEC) in the U.S.
o Securities and Exchange Board of India (SEBI) in India.
3.
Investment
Banks
o Assist companies in raising capital by underwriting new
securities.
4.
Brokerage
Firms
o Provide a trading platform for investors and charge
commissions.
5.
Mutual Funds
& Asset Management Companies
o Pool investors’ money to invest in diversified portfolios.
6.
Credit
Rating Agencies
o Assess the financial health of companies and governments
issuing bonds.
Conclusion
The
capital market is a crucial pillar of the global economy, allowing companies to
raise capital efficiently while providing investment opportunities for
individuals and institutions. With various financial instruments and a network
of intermediaries, it ensures liquidity, transparency, and growth in financial
markets.
0 comments:
Note: Only a member of this blog may post a comment.