Capital Markets are the exchange platform where the money of the investor is transferred to businesses that require the capital to finance various projects or investments.
Types of Capital Markets
Equity Securities: Equity Securities are traded on the share market and are essentially ownership shares of a business or venture. When you own the equity securities of a company, you own a portion of that company and are entitled to any future profits that the company brings in. However, the money you invest in equity securities is not needed to be paid back by the business.
Debt Securities: Debt securities are traded on the bond market and IOU can come in the form of bonds. Interest is the compensation that entices lenders to lend their money. The borrower will take the money today and use it for other financial operations and pay the money back in addition to a prescribed rate of interest at a later date. The securities can be exchanged in two types of markets. The primary market is when a company directly issues the securities in exchange for money. In the secondary market, the security holders trade with other investors in a transaction that is separated from the issuing company.
Products of Capital Markets:
- Debt Securities
- Foreign Exchange
All of the above is traded in different markets and exchanges. Products such as Equities, Foreign exchange, and Derivative securities are centralized. And the rest are decentralized. It is traded between market participants without an exchange or a broker. Derivatives are a bit complicated but they buy a huge market as well. They are versatile and can be structured.
Capital markets are predominant in the global economy. It provides an arena in which investors looking to invest saved funds in return for maximum returns. They can channel their capital towards people and businesses who need the capital now in order to expand their empire.