The two commonly known types of Capital Markets are Primary Market and Secondary Market. In the Primary Market, companies or individuals issue new securities in order to raise capital. These are first-time issuances. In the Secondary Market, securities that were issued in the Primary Market are bought and sold among investors.
Capital Market Meaning
Capital markets is a financial market where individuals and institutions come together to exchange stocks, bonds, currencies, and various financial assets. These markets include both the stock market and the bond market. They encourage innovation by supporting entrepreneurs and fostering the growth of small enterprises into large corporations.
Types Of Capital Market
The two generally known Capital Markets are the Primary Market and the Secondary Market. In the Primary Market, new securities are issued and sold by companies to raise capital. On the other hand, the old or existing financial securities are bought and sold among investors In the Secondary Market.
Primary Market:
The primary Market, also known as the Issue market, is where newly issued securities, such as stocks and bonds, are offered and sold directly by companies or governments to raise capital. Investors in the primary market buy these securities from the issuing entity, providing them with the funds they need for various purposes, such as expansion or project financing.
Secondary Market:
The Secondary market is where the previously issued securities in the Primary Market are traded among investors. The issuing entity is not directly involved in these transactions, and the trading occurs among investors. Stock exchanges and bond markets are examples of secondary markets. The secondary market provides liquidity and allows investors to buy and sell securities they already own, facilitating price discovery and market efficiency.
Explain The Role Of Capital Market In India
The capital market plays a crucial role in sustaining a country’s capitalist system. It is supervised by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India. Their aim is to safeguard the interests of investors and increase the efficiency of capital markets within India. Furthermore, advancements in information technology have made stock exchange trading platforms readily accessible from any location within the country through trading terminals.
Different Types Of Capital Market – Quick Summary
- The two Types of Capital Markets are Primary Market and Secondary Market. All the new securities are issued by companies in the primary market, while the previously issued securities are bought and sold among investors in the Secondary market.
- Capital markets is a financial market where individuals and institutions trade a range of financial assets, such as stocks, bonds, and currencies.
- In the primary market, also referred to as the issue market, investors acquire securities directly from the issuing entity, thereby furnishing the issuing entity with the necessary funds for diverse objectives, such as expansion or project financing.
- The secondary market encompasses the trading of pre-existing securities among investors. It serves to bolster liquidity, facilitate price determination, and improve overall market efficiency.
- The capital market has made a significant mark on India’s economic system, with regulatory authorities like SEBI and the Reserve Bank of India ensuring investor protection and market efficiency.
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Types Of Capital Market – FAQs
What Are The Types Of Capital Markets?
There are 2 type of Capital market:
- Primary Market- In Primary Market, new securities are issued and traded.
- Secondary Market- In the Secondary Market, previously issued securities are traded.
What is the difference between a money market and a capital market?
The main difference between a money market and a capital market is that the money market deals with short-term debt securities often with maturities of one year or less, while the capital market focuses on longer-term securities with maturities exceeding one year.
