Reviewed by Aug 27, 2020| Updated on
What are Capital Markets?
Capital markets are places where savings and investments are channelled between capital-intensive suppliers and those in need. The groups with capital include retail and institutional investors while those seeking capital are corporations, governments and individuals.
Capital markets consist of both the primary and secondary markets. The shares and bond markets are essential capital markets.
Capital markets are moving towards enhancing transactional efficiencies. These markets bring together those who hold capital and those who seek money and provide a place for companies to exchange securities.
Breaking Down Capital Markets
The word capital market loosely describes the position where different companies exchange various financial instruments. These venues may include the stock market, the bond market, and foreign exchange and currency markets. Most markets are concentrated in major financial centres, including New York, London, Singapore, Hong Kong and many others.
Capital markets are made up of fund providers and consumers. Suppliers include households and the institutions that represent them — pension funds, life insurance firms, charitable foundations and non-financial firms — that produce cash beyond their investment needs.
Capital markets are used for the selling of financial assets like equities and debt securities. Investments are securities which are shares in a company's capital. Debt securities are interest-bearing IOUs, for instance, bonds. Such markets are classified into two main categories: primary markets — where investors are sold new equity stock and bond issues — and secondary markets, which exchange existing securities.
Capital markets are a vital part of a working capitalist economy as they transfer capital to those who need it for beneficial use from the people who have it.