Capital market is a plate-form that provided opportunities to investors for raising finance. Various financial items are being traded including debt and equity instruments. Investors has dynamic choice to go for both the long term and short term funds.
Capital market provides freedom to investors to trade bonds,stocks and commodity exchange. Capital market involves with those instruments which have mainly a long term maturity unlike money market which involve trade of items which have maturity equal to or less than one year. Capital market is more broad in terms of people as individuals,banks, Governments,mutual funds,pension funds, financial institutions as well as companies who are saving and investing through this market. Stock exchange,over the counter market and brokerage firms are also participants of capital market.
Investors have open choice to go for investments as per their taste. There are many opportunities for adventurous investors who love to take risk and enjoy heavy gains. At the same time, cautious investors may also find opportunities that give stable and less risky return.
Strong ethical and legal scrutiny is applied on all financial dealing to maintain trust and integrity of capital market. Fair and profitable dealings by buy and selling bonds and stock will yield capital returns and provide ample chances to participant to implement medium and long term strategies to rise capital and grown financial assets which eventually will rise the over all economy at individual and government level.
The open grounds for sale and purchase of financial commodities gives affordable option to participants to generate finance through loan or equity and increase financial security. This financial security coupled with capital strength at national level is directly proportional to the economic strengthening of that nation. Now a days there is a strong inclination towards globalized capital market. U.S Capital market is a rich and deep capital market which has globalized impact on domestic as well as foreign investors providing a broad field to them to avail returns from diversified portfolio of investments. No doubt, there are some plus as well as some drawbacks because of globalization of capital markets.
Individuals and companies have different motives to buy and sell instruments of capital markets. Companies can raise finance through bank loan, sale of stock or bonds. Choice of medium and long term financial strategy will also effect the choice of capital market instruments. Stocks are best options to grow share capital of a young and growing company which is not happy yo raise long term liabilities and willing to increase it share capital. While a company who is able to maintain a strong share capital and choosing to avoid further dilution of ownership will prefer to issue bonds. As bonds are debt instruments, requiring repayment, there is a strong need to have proof that company will generate enough cash flows to redeem the bond. Affects of rising interest rates will also influence the choice. In case of rising interest rates. Low level of interest rates will encourage the companies to borrow by enjoying low borrowing cost. Bonds, nevertheless are always wise financial strategy for companies to raise funds for capital projects and acquisitions as it provides enough time span to repay the borrowed funds even interest rates rise.