Capital Markets Explained
A capital market is a type of financial market for the purchase-sale of securities, such as stocks, bonds, and long-term debt securities. It allows companies to place their securities with a large number of investors for the purpose of financing working capital and the expansion of the company.
A Little More on Capital Markets
Characteristics of the capital markets:
- When the investor purchases securities (shares) of the company, he becomes an owner of the company in proportion to the capital he owns.
- Capital markets add “liquidity”, making it is relatively easy to buy and sell securities.
- Capital markets add to the volatility in the prices of the securities.
- There is no guarantee of obtaining benefits for purchasing or selling securities.
- There is no specific term/period for the purchase-sale of securities, and each one chooses when to buy or sell.
Benefits and objectives of the capital markets include:
- It can result in profits in the short and long term.
- It allows for diversifying the risk in the investment portfolio.
- It allows legal and secure access to the best companies in the world.
- It allows companies to obtain financing for operations.
- It offers a wide range of products with different associated levels of risk according to the investment or financing needs of market participants.
- It reduces the costs of selection of and allocation of resources to productive activities.
Capital markets can be classified according to different criteria:
- The assets traded in them.
- According to its structure
- Organized market: that official market, regulated and supervised.
- OTC Market (Over The Counter) – Where the negotiation is done directly between the parties, presents a greater risk.
- Based on the time
- Primary or issue market: Where the securities issued are transmitted for the first time.
- Secondary market: Where the successive purchase-sales of securities already issued in the primary market are made.
References for Capital Markets