Transcript Slide 1

Efficient Capital Market
• An efficient capital market is a market where
the share prices reflect new information
accurately and in real time. Capital market
efficiency is judged by its success in
incorporating and inducting information,
generally about the basic value of securities,
into the price of securities. This basic or
fundamental value of securities is the present
value of the cash flows expected in the future
by the person owning the securities
• The fluctuation in the value of stocks
encourage traders to trade in a competitive
manner with the objective of maximum profit.
This results in price movements towards the
current value of the cash flows in the future.
The information is very easily available at
cheap rates because of the presence of
organized markets and various technological
innovations. An efficient capital market
incorporates information quickly and
• In the weak-form efficient capital market,
information about the history of previous
returns and prices are reflected fully in the
security prices; the returns from stocks in this
type of market are unpredictable.
• In the semistrong-form efficient market, the
public information is completely reflected in
security prices; in this market, those traders
who have non-public information access can
earn excess profits.
In the strong-form efficient market, under no
circumstances can investors earn excess
profits because all of the information is
incorporated into the security prices.
• The funds that are flowing in capital markets, from
savers to the firms with the aim of financing projects,
must flow into the best and top valued projects and,
therefore, informational efficiency is of supreme
importance. Stocks must be efficiently priced, because
if the securities are priced accurately, then those
investors who do not have time for market analysis
would feel confident about making investments in the
capital market.
Eugene Fama was one of the earliest to theorize capital
market efficiency, but empirical tests of capital market
efficiency had begun even before that.
Capital Market Regulations
• Regulations are an absolute necessity in the
face of the growing importance of capital
markets throughout the world. The
development of a market economy is
dependent on the development of the capital
market. The regulation of a capital market
involves the regulation of securities; these
rules enable the capital market to function
more efficiently and impartially.
• A well regulated market has the potential to encourage
additional investors to partake, and contribute in,
furthering the development of the economy.
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The chief capital market regulatory authorities worldwide
are as follows: U.S. Securities and Exchange Commission
Canadian Securities Administrators, Canada
Australian Securities and Investments Commission
Securities and Exchange Commission, Pakistan
Securities and Exchange Board of India
Securities and Exchange Commission, Bangladesh
Securities and Exchange Surveillance Commission
• Securities and Futures Commission, Hong
Kong
• Financial Supervision Authority, Finland
• Financial Supervision Commission, Bulgaria
• Financial Services Authority, UK
• Comision Nacional del Mercado de Valores,
Spain
• Authority of Financial Markets
• The United States Securities and Excha
• The United States Securities and Exchange
Commission (SEC), established in 1934, has
the responsibility of regulating and controlling
the securities industry/stock market, and
enforcing the federal securities laws.
• Public companies have to keep in compliance
with the statutory requirements by submitting
quarterly and annual reports to the SEC;
companies involved in fraudulent activities are
brought to task.
These submitted reports are essential, as
investors require them in order to make
crucial decisions before investing in the capital
market
• The Canadian Securities Administrators (CSA)
is responsible for the development of the
Canadian Securities Regulatory System and
regulates the capital market of Canada,
protecting investors from fraudulent and
nefarious activities. The CSA looks to establish
a just, clear and dependable capital market
system.
Capital Market Liberalization
• Capital market liberalization, a result of
globalization and trade liberalization, refers to
the relaxation of government restrictions in
the market. Not only government entities, but
also private entities participate its functioning,
and investors around the world are able to
invest in the shares and bonds of other
countries.
• Worldwide economies, particularly in the
developing countries, are opening their doors
to foreign investments and capital, enhancing
global competitiveness.
Unbound circulation of goods and services
within and between countries results in an
increase in the circulation of money, causing a
positive effect on the capital market.
• Non-tariff and tariff trade barriers are
eliminated, and avoidable legislations and
taxes are not imposed as a result. Not only do
parties involved in a trade stand to benefit
from the effects of liberalization, but gains in
productivity and the maximization of the
economy's general efficiency are also a result.
As well as free access that can be had to the
market's information, there is a complete
absence of policies that hamper trade and
labor, and capital is allowed free flow under
the liberalized market.
• For a long period of time, the development of
open capital markets has been a prerogative
worldwide and several economies have made
huge developments by opening up their markets.
The whole capital market has now become a
global common market, with globalization
ensuring hassle free imports and exports.
Corporations and companies are able to receive
external investments and, along with individuals,
can gain access to foreign goods and services.
Capital Market Services
• Capital market denotes the market where
securities are traded. This market is further
divided in several types known as debt capital
market and equity capital market. The capital
market services provide the investors with the
opportunity to enter in this market without
any real problem. This market has the
potential to produce high yields and at the
same time, this market can also produce high
risk factors
• There are several companies involved in
providing the capital market services to the
investors. The main services that are provided
by these companies are stock broking services
and consultancy services. Today, most of the
equity capital market trades are done online.
There are several companies that are
providing these facilities to the investors.
• Again, the stock broking services which are
provided by many companies are of immense use
for a large number of investors and especially the
newcomers need these services for their own
sake. The stock broking firms help the investor to
select the appropriate stocks which is the primary
condition of this market. These brokers also help
the customers to make their investment portfolio
in such a manner that the portfolio can adjust
itself with the sudden changes of the market.
• At the same time there are certain software
companies that are providing capital market
services to the investors, but in a different
manner. Actually these software companies
help the online companies to make their
services much easier and smooth. At the same
time, the software companies are also
concerned about adding extra amount of pace
in the process because speed alone can
emerge as as decisive factor in the capital
• Again there are a number of online portals which
are providing capital market services to the
investors. These portals are providing all the
latest information and changes regarding the
market. These information are very important
from the investors point of view because constant
update of information regarding the market can
help an investor to raise his profits and at the
same time, it also helps the investor to reduce
the risk factor.
Capital Market Research
• Capital market research is an essential activity
for companies because it enables them to
provide products and services that are useful
for the targeted consumers. Such a focused
and logical approach enhances the profit
making possibilities of companies. The
companies can earn more dividends and at
the same time minimize risks as a result of
research on capital markets.
• One big advantage of capital market research
is establishment of proper communication
between the companies and the customers.
The customer reactions to various services
provided by the companies can be measured
as a result of capital market research. The
companies can thus do away with wrong
policies and look to take the right steps
• The companies can also locate the right
opportunities through market research. If the
company undertakes capital market research
before launching a new product or service
then it stands a better chance of getting a
good return.
• Risk minimization is another reason for
undertaking capital market research. Through
this research, the exact needs of the market
and the general public can be gauged and the
products and services can be made very
demand oriented. The companies can also
analyze whether they are making progress in
the right direction
• Capital market research should be done as
early as possible in order to avoid problems in
the future.
Before investing in the stock market, stock
market research needs to be undertaken.
Research involves finding the companies and
stock prices that would best suit the financial
situation of the investor
• The company profile needs to be studied and
the size of the company is another important
parameter of stock market investment
research. Gathering information on the history
of the company is another facet. Its history of
profits and popularity and its performance in
the past must be analyzed before investing in
the shares of that company.
• Research on the products and services of
various companies is also very important.
Investments should be made for the long
term. This minimizes risk and increases
profitability. Lastly, investment should be
made wisely and regularly and this results
from a good capital market research.
Secondary Capital Market
• The secondary capital market deals with
those securities that are already issued in an
initial public offering in the primary market.
Typically, the secondary markets are those
where previously issued securities are
purchase
• In the secondary capital market, the securities
are generally sold by and transferred from one
investor to another. Hence, the secondary
capital market needs to be highly liquid in
nature.hased and sold.
• A high transparency for the secondary market
trading is also required. With the
advancement of the technology, the trading
concept in secondary market has changed
substantially. In the earlier days, the investors
needed to meet at fixed place in order to carry
out the transactions. But now trading in
secondary capital market has become much
easier for the investors.
• The capital market handles the trading of
stocks and bonds. The secondary bond
markets play a market place for the bonds
that are already issued in the primary market
while the secondary stock market trades those
stocks that are already issued by the issuers.
The treasury bills secondary market handles
the trading of treasury bills.
• The secondary market trading is vital for the
capital market. A study in the secondary
market trend can give some information on
the investor's preference for liquidity. It means
whether the investors want to invest their
money for a short period of time or a longer
period.
• It has been seen that the investors in the
capital market do not prefer to put their
money for the long term investments. But the
secondary market investors, however, can
compensate their investments with proper
strategy.
• The secondary market value of a stock or a
bond is different from their face value. This
happens due to the fluctuating interest rates.
The resale value of the bonds in the secondary
market is based on the interest rates at that
very time when the sale goes through. In a
typical secondary market, when the interest
rate falls, the bond value goes up while when
the rate rises, the bond value goes down.
• Capital market trends can be sub-divided into
primary, secondary (short-term), and secular
(long-term) trends. A technical analysis
assumes the fact that movements of market
prices follow a particular trend. They are
periods when buyers consistently outnumber
sellers; in other words, the bulls outnumber
bears.
• Primary trends include bull markets and bear
markets. The bull market is a situation where
investors buy in order to increase capital gains in
the future. In a bear market, on the other hand,
the investors anticipate losses and therefore they
are obliged to sell. Price fluctuation is an
important tendency of an open market. The
Gross Domestic Product(GDP) and stock prices
are on the rise during a bull market. A bear
market exhibits negative trends; it can also be a
prelude to recession.
• Secondary market trends refer to price
changes within a primary trend. These price
changes are not permanent. A temporary
decrease in price during a bull market is a
correction. During correction, the price drop is
normally 10% to 20%. The same percentage
increase is experienced during the time of a
bear market rally. This refers to a transient
increase in price during the time of a bull
market.
• Secular market trends are long-term. They
usually remain for a period of five to twenty
five years. Many primary trends sequentially
arranged result in a secular market trend. In
such case, the bull markets are bigger and a
bear market does not erase the gains of the
previous bull market. In secular bear markets,
the duration of a bull market is smaller.
Capital Market Reform
• Capital market reform enables the capital
markets to embrace new ideas and techniques
affecting the capital market. Capital market
liberalization is one such capital market
reform that is adopted by various countries to
strengthen their economy.
• A capital market is a place that handles the
buying and selling of the securities. This is the
ideal place where both the governments and
companies can raise their funds. The capital
markets of all the countries have undergone a
number of reforms in the history. Economic
theories are made and implemented to reform
the functionalities of the capital market. The
prime objective behind all the policies and
reforms was obviously to strengthen the capital
market of a particular country as much as
possible.
• It has been always a big question to the
economists whether to allow or not to allow the
foreign investments in the country. Packaged with
both advantages and disadvantages, the
liberalization of the capital markets has always
been controversial. In the 1980s and 1990s when
the US Treasury and International Monetary Fund
(IMF) tried to push world-wide capital-market
liberalization, there had been enormous
opposition. Economists were not in the support
of free and unfettered markets.
• Now, when the capitalist countries, developing
capitalist countries, underdeveloped countries
and a large number of socialist countries have
nodded their support to the capital market
reform and capital market globalization, the
global capital market has evolved in a new
identity. The concept of capital market is not
restricted to the share and bond trading in the
developed capitalist countries only but is equally
influenced by the capital markets of developing
and underdeveloped countries as well.
• Now the economic or financial change in one
country can affect the capital market of other
country in real time. Almost all the countries are
now exposed to the inter-country trades and
inter-country investments. The use of internet
and electronic media has added some more
feasibility to the practice. Exchange of
information is fast and accurate with internet.
Another advantage of this system is that it brings
the entire world in a single place. The capital
market is one of the industries that enjoy the
maximum facility of the internet service.
Capital Market Investment
• The capital market investment makes the
investors to buy or sell securities in the capital
markets. The stock market and bond market
are types of capital markets where investors
can trade in stocks and bonds. The
investments in the capital market may be
either in the bonds or stocks.
• Investments in the stocks or bonds may be either
investing in the new issues or in the existing
securities. The primary capital market handles
the trading and investments in the new issues
while the secondary capital market takes care of
the trading of existing securities. There are a
number of financial regulators that monitor the
capital market dealings in order to protect the
investors from fraud. U.S. Securities and
Exchange Commission is one such financial
regulator that regulates the capital markets
situated in their designated countries for the best
• Stock Investment
• The investment in stocks may in six different
styles. Depending on the needs and reasons of
the investors, the efficiency of the investment
is estimated. There are some investors who
depend on the advice of other people while
purchasing or selling a particular stock.
• There are technical investors who spend time
in studying the stock patterns before trading
any stock. The economist investors take their
decision of stock trading depending on the
economic forecasts. They are in the nature to
take risks and get benefited in return following
an efficient market hypotheses. There are
some other types of investors who rely on the
information given by the researchers, vendors
and trade executives to make investment in
• There are value investors who try to value the
stock independently of its market price.
Finally, there are conscious investors who
depend on their own measurements and
beliefs while making any stock investment.
Bond Investment
Bond Investment
• Bond investment is different from that of stock
investment. Bond investment is investing in the
debt instrument that is issued by a company or
government. The bond investor is actually lending
money to the company while in return is
promised to be paid the full principal amount
plus a fixed periodic payout. The yield on the
bond is calculated by putting together the final
principal and total payouts received. The yield is
the effective interest rate for the tenure of the
bond.
Capital Market Assumptions
• Asset allocation is one of the most important
decisions related to investment in the capital
market. There are a number of risk factors
related to these investments, and because of
this appropriate capital market analyses are
necessary. There are firms which provide
capital market investment solutions to
investors, each making their own risk and
return calculations, or capital market
assumptions.
• These assumptions are followed strictly when
making suggestions to the clients regarding
the asset allocation. Many companies also
provide their clients with their capital market
assumptions so that the clients can evaluate
their own investment decisions
• Of course, capital market assumptions cannot be
permanent and thus need to be changed from
time to time. The market prices of different
investment instruments change very rapidly, and
with this rapid change the level of risk also
changes. Different consultation companies use
different techniques to get their perfect capital
market assumptions. However, most companies
concentrate on valuations because they can
provide the most accurate capital market
assumptions for the future.
• Other factors useful in making capital market
assumptions are the ratio between the price
and earning of the particular asset, the
dividend yield, the interest rates, and the
growth rate of the assets.
• Apart from the internal factors of the capital
market, there are also macroeconomic trends
that are related to making capital market
assumptions. These include the level of inflation,
changes in the Gross Domestic Product (GDP),
and increases or decreases in the unemployment
rate. International external factors related to the
capital market which play a major role in shaping
capital market assumptions too include taxation,
foreign denominations, and decisions of national
regulators.
Capital Market Transactions
• The capital market transactions are made
while trading in the capital market securities.
Stocks and bonds are the two types of
securities where the capital market
investments are done. Capital market
transactions are monitored by the financial
regulatory bodies.
• A typical capital market includes the trading of
securities. This is also the ideal market place
for the companies and governments to raise
funds. There are financial regulatory bodies in
every country that monitor and regulate the
capital market transactions in order to protect
the investors from being cheated.
• U.S. Securities and Exchange Commission,
Australian Securities and Investments
Commission, Canadian Securities
Administrators, Financial Services Authority
(UK) and Securities and Exchange Board of
India are some of the major financial
regulators that regulate the capital market
transactions in their respective countries.
• The investment in the capital market can be done
either in the new issues or in the existing
securities. The primary capital market controls
the new issue transactions while the secondary
capital market takes care of the trading of the
existing securities.
The corporations, banks or governments release
stocks and bonds in the capital market in order to
raise the long-term funds. The individual
investors, companies, agencies and corporations
can invest in these stocks and bonds either by
purchasing or selling them.
• The trading of stocks and bonds in the capital is
not easy for the novice and not even for the
seasoned investors. It’s difficult to predict the
trends of a capital market.
Every investor wants to play safe with their
investments. There are financial advisers
available to guide the investors telling them
where to invest and where not to. There are stock
brokers also who are experienced and eligible to
guide people with stock and bond investments.
• The capital market transactions are done by
the brokers who are registered with the
exchange to carry out the trading on behalf of
their clients. Any individual cannot just walk in
the stock exchange and invest on the stocks or
bonds. He must have to go through the
brokers in order to make any kind of
transaction in the capital market.
Capital Market Risk
• The capital market risk usually defines the risk
involved in the investments. The stark
potential of experiencing losses following a
fluctuation in security prices is the reason
behind the capital market risk. The capital
market risk cannot be diversified.
• The capital market risk can also be referred to
as the capital market systematic risk. While an
individual is investing on a security, the risk
and return cannot be separated. The risk is
the integrated part of the investment. The
higher the potential of return, the higher is
the risk associated with it. The examination of
the involved in the capital market investment
is the one of the prime aspects of investing. It
can be easily said that the risk distinguishes an
investment from the savings.
• The systematic risk is also common to the entire class
of liabilities or assets. Depending on the economic
changes the value of investments can fall enormously.
There may be some other financial events also
impacting the investment markets. In order to give a
check to the capital market risk, the asset allocation
can be fruitful in some cases.
Any investment in stocks or bonds comes with the
following types of risks. Market Risk
• Industry Risk
• Regulatory Risk
• Business Risk
• The market risk defines the overall risk
involved in the capital market investments.
The stock market rises and falls depending on
a number of issues. The collective view of the
investors to invest in a particular stock or
bond plays a significant role in the stock
market rise and fall. Even if the company is
going through a bad phase, the stock price
may go up due to a rising stock market
• While conversely, the stock price may fall
because the market is not steady even if the
investor’s company is doing well. Hence, these
are the market risks that the stocks investors
generally face.
• The industry risk affects all the companies of a
certain industry. Hence the stocks within an
industry fall under the industry risk. The
regulatory risk may affect the investors if the
investor’s company comes under the
obligation of government implemented new
regulations and laws. The business risk may
affect the investors if the company goes
through some convulsion depending on
management, strategies, market share and
labor force.
Capital Market Conditions
• The capital market conditions are influenced
by the rise and fall of the stock market and
bond market. Other than the financial
condition of the economy, capital markets are
also influenced by various other external
factors.
• The capital market deals with the buying and
selling of securities including stocks and
bonds. The capital market conditions largely
depend on the prices of stocks and bonds.
There are various risks involved in the capital
market investment that affect the capital
market conditions. The capital market risks,
also termed as systematic risks, can be either
market driven, industry driven or business
driven.
• The risks may affect the stock and bond prices
gravely. The capital market investors always
need to be aware of the various factors that
affect the capital market conditions.
• The economists suggest that behavior of the
capital market also largely depends on the
whims of the investors. The investors may
temporarily pull the stock prices resulting
over-reaction in the financial market. The
excessive optimism, or also known as
euphoria, may thus pull up the stock price
unduly high. On the other hand, excessive
pessimism may also drive the stock price to
the lowest.
• In order to improve the liquidity and
transaction feasibility, the capital markets
undergo innovations and experiments. The
major contribution of the capital markets to
the financial markets is to raise the capital.
The corporations, companies, banks and
governments issue stocks and bonds in order
to raise funds.
• The capital market plays the base market for
this. The conditions of capital market
influence the overall condition of the financial
market. While the fluctuation of stocks and
bonds prices affect the conditions in capital
market, the vise versa is also true. Depending
on the condition of the capital market, the
trading trends of the stock markets and bond
markets may also vary.
• The capital markets may be either primary
market or secondary market. On one hand
when the primary market deals with the
newly issued securities, the secondary market
trades the securities that have already been
issued. The overall market trend of issuing the
securities also affects the capital market
conditions heavily.
Role of Capital Market
• The primary role of the capital market is to
raise long-term funds for governments, banks,
and corporations while providing a platform
for the trading of securities.
This fundraising is regulated by the
performance of the stock and bond markets
within the capital market. The member
organizations of the capital market may issue
stocks and bonds in order to raise funds.
Investors can then invest in the capital market
• The capital market, however, is not without
risk. It is important for investors to understand
market trends before fully investing in the
capital market. To that end, there are various
market indices available to investors that
reflect the present performance of the
market.
• Regulation of the Capital Market
• Every capital market in the world is monitored by
financial regulators and their respective
governance organization. The purpose of such
regulation is to protect investors from fraud and
deception. Financial regulatory bodies are also
charged with minimizing financial losses, issuing
licenses to financial service providers, and
enforcing applicable laws.
• The Capital Market’s Influence on
International Trade
• Capital market investment is no longer
confined to the boundaries of a single nation.
Today’s corporations and individuals are able,
under some regulation, to invest in the capital
market of any country in the world.
Investment in foreign capital markets has
caused substantial enhancement to the
business of international trade.
• The Primary and Secondary Markets
• the capital market is also dependent on two sub-markets –
the
• primary market and the secondary market. The primary
market
• deals with newly issued securities and is responsible for
• generating new long-term capital. The secondary market
handles
• the trading of previously-issued securities, and must
remain
• highly liquid in nature because most of the securities are
sold by investors. A capital market with high liquidity and
high transparency is predicated upon a secondary market
with the same qualities.
Capital Market Securities
• Stocks and bonds are generally termed as the
capital market securities. These are traded in
separate markets. These capital market
securities are used by a number of companies,
corporations and governments to raise funds
for various purposes. These funds are raised
for long terms. There are the regulatory
authorities in every country to supervise the
capital market securities and their respective
market.
• The bond market is a part of the capital
market and provides the opportunity to deal
in the debt securities. Bond is the medium of
dealing in the debt securities. As one of the
capital market securities, bond enjoys a vast
international market which is estimated
around $45 trillion. A huge portion of this
bond market transaction generally takes place
in the over-the-counter market. On the other
hand, the corporate bonds are listed on the
• There are different types of bonds available in
the market like the corporate bond, The
municipal bond, the government bond and
many more. Among all these capital market
securities, the government bond is the most
secured one. The government bond market is
very big and its liquidity is also beyond
comparison.
• Another important capital market securities is
known as stocks. These are preferred by the
investors because an investor can get huge
returns from this capital market instrument. The
stock market is used for trading of company
stocks, other securities and derivatives. $45
trillion is the estimated size of the global stock
market. This market is used by the companies to
raise funds for different purposes. At times, the
governments also turn towards the stock market
to generate funds.
• The market participants include every kind of
investor. There are both the individual
investors and the institutional investors who
are taking part in the market.
• In the past, there were only the individual
investors in the market but the market trend
has completely changed and todays market is
mainly dominated by the institutions which in
turn, is increasing the volume of the market.
• The investor should take proper care while
selecting the capital market securities because
the risk factor related to these securities are
different.
At the same time, the returns may also vary.
So a proper research should be done before
investment.
Capital Market Line
• The capital market line (CML) is a kind of
graph, originating from the capital asset
pricing model (CAPM). The CAPM is used to
confirm a theoretically-suited necessary rate
of return on an asset when it is about to be
added to an existing and well-performing
portfolio.
• The CML is used to determine the rate of
return for certain efficient portfolios. This
analysis is dependent upon the risk-free rate
of return and the amount of risk involved in a
particular portfolio.
• The Sharpe ratio, through certain calculations,
represents the proportion of risk and extra
return that a portfolio provides. The portfolio
which has the highest Sharpe ratio is known as
the market portfolio.
Every portfolio included in the market
portfolio is optimized for a certain amount of
risk. The amount of risk related to the
particular asset is considered with
importance.
• According to the CAPM, the market portfolio
represents the efficient frontier. The efficient
frontier can be defined as an ingathering of
portfolios.
The market portfolio, when combined with
the risk-free asset, is capable of producing a
higher return than the efficient frontier
• The combination of the market portfolio and
the risk-free asset gives birth to the CML.
Experts tend to prefer CML over the efficient
frontier because the CML considers the
addition of a risk-free asset in the portfolio.
Venture Capital Market
• Venture capital is an age old concept but the
venture capital market has developed in the
recent decades. The term venture capital
denotes the act of investment in the areas of
high risk, in order to get some high returns
• The developments in the venture capital
market has taken place in the US markets
mainly. The market of venture capital, in the
past, was disconnected and may be identified
as an individualized to some extent. In the
recent times only, the market has been
shaped and the market became matured.
• Venture capital markets are like boons for
Those who wants to set up new business. At
the same time, if an existing business wants to
develop, the venture capitalists are there to
provide financial assistance. These capitalists
have their own business interest behind the
assistance
• These people wants to have a share of the
huge profits by the business in the future.
Because of this, only those businesses are
selected which are supposed to develop
rapidly in the future. For the purpose, the
venture capitalists have their own team of
people to identify the appropriate
opportunities.
• The modern concept of venture capital should be
grateful to General Doriot because he was the
person who founded the American Research and
Development Fund.
• This was done to provide financial assistance to
the activities of developing new technologies in
the US universities. At the same time, the
commercial use and financial benefits from such
technologies were also considered seriously.
• With the commercial success of the concept
of venture capital, big players entered the
venture capital market of United States of
America. The giant companies like Xerox and
General Electric played a major role in
expanding the venture capital market
• The entry of these companies in this market
encouraged with separate divisions to deal in
the market, encouraged many others. Because
of these situations, the venture capital market
was expanded beyond the territories of US
and within a short period, it gained ground
globally.
Debt Capital Market
• Debt capital market and equity market jointly
makes the capital market. These markets are
used by the governments and several
companies for raising funds for long and short
term. The trade in these markets are done
through several financial instruments.
• The debt capital market trades in such
financial instruments which pays interest.
There are the bonds and several loans which
acts as the prime financial instrument of this
market.
• Because of these interest factor, the debt
capital market is also known as fixed income
market.
• Bonds are of several types like the
government bonds, the municipal bonds,
corporate bonds and many more. By investing
in these bonds, the investors actually provide
loan to the respective organization or to the
government.
These loans are provided for some fixed
interest rate which the company or the
organization provides to the investor at
regular intervals.
• The modern concept of venture capital should
be grateful to General Doriot because he was
the person who founded the American
Research and Development Fund.
This was done to provide financial assistance
to the activities of developing new
technologies in the US universities.
• The giant companies like Xerox and General
Electric played a major role in expanding the
venture capital market.
The entry of these companies in this market
encouraged with separate divisions to deal in the
market, encouraged many others. Because of
these situations, the venture capital market was
expanded beyond the territories of US and within
a short period, it gained ground globally.
Equity Capital Market
• The equity capital market is an important part
of the capital market. In this market,
companies and financial institutions raise
funds and provide equities using the shares of
their own businesses. Investors invest in the
company by purchasing the shares or equities
• Company stocks are the prime financial
instrument of the equity capital market. This
instrument is provided and maintained by the
companies or the financial institutions
themselves.
The reputation of the stocks in the equity
capital market is largely dependent on the
companies themselves, because the it is
maintained by different types of financial data
provided by the companies.
• The provided data helps the investor understand
the present position and the future of the
company in the equity capital market.
When the investor is satisfied, he or she makes
the investment and the money grows with the
company. In certain situations, the result may not
be beneficial to the investor. The companies also
provide regular dividends to these investors.
• Participants in the equity capital market range
from huge companies to small individual
investors. In the past, wealthy individuals
dominated the market, but market trends are
different now. The introduction of institutional
investors has improved the market, and today
they are playing the dominant role.
• In addition to different types of company
stocks, the equity capital market provides
financial instruments known as derivatives.
Futures, swaps and options are among these
derivatives. The value of these instruments
derives from the equities themselves.
• The equity capital market and the debt capital
market together form the capital market. The
primary difference between the equity capital
and debt capital markets is the amount of risk
and return related to them. The equity capital
market is known for its huge returns and its
high risks. On the other hand, the debt capital
market is far more secure than the equity
market but the returns are low.
Major Capital Market Companies
• Major capital market companies of the world
are doing a flourishing business. Many
investment banking and brokerage companies
provide capital market services to their clients.
Wanchova Securities provides top class capital
market services
• This company provides corporate advisory
services, private capital, advice on
acquisitions, risk management services, equity
investing, asset and mortgage backed
securities, and underwriting services.
Genuity Capital Markets is a private firm
providing capital market services
independently in Canada. The investment
banking services of this company includes
facilitating acquisitions and mergers, providing
financial restructuring services and dishing out
• Private Capital Market Corporation facilitates
services like venture capital financing, growth
financing, recapitalizations, business sales,
private placements, and management buyouts.
This investment bank is registered with the
Ontario Securities Commission. The firm works in
close collaboration with their clients in order to
satisfy their financial needs.
• Viteos Capital Market Services processes
securities and provides various fund services.
Intermediaries in the capital market like asset
managers, investment banks, brokers, and
financial information service providers benefit
from the services of this company.
• NCB Capital Markets specializes in wealth and
asset management services. This Jamaican
company provides products and services like
mutual funds, bonds, stocks, and wealth
access. Investors in the stock market having
long term and medium term goals can benefit
from the services of this company.
• Another of the major capital market
companies is Louis Capital Markets. This
brokerage firm has an enviable global footing.
This company was established in New York in
1999. Cash equity, research, and execution of
commodities and foreign exchange business
are the chief concerns of this company
• Samco Capital Market is an investment bank established in
1987. This company has expertise in corporate finance,
bank development, municipal finance, and securities
securities. The company also trades in fixed income
securities. The consultation services on mortgage buying
provided by the company are of the first order.
ORIX Capital Markets is owned by ORIX USA Corporation.
They have products like asset backed securities, synthetic
credit products, structured real estate and financing
transactions, and high yield municipal securities.
Some other important capital market companies are Loop
Capital Markets, SBI Capital Markets, and PNC Capital
Markets.
Global Capital Market
• The global capital market is gaining depth
everyday. Along with the development of this
market, the liquidity is also growing at a rapid
pace. Several surveys have shown that
financial stocks are growing worldwide and
their growth rate is much higher than that of
global gross domestic products.
• Capital market represents the securities
market where stocks, bonds, and several other
derivatives are traded, and both long and
short-term debts are raised here. This market
provides companies, as well as governments
with necessary funding, and, simultaneously,
grants investors with the opportunity to make
regular income.
• The development of the global capital market
can also be traced by the fact that the
financial holdings of the world is growing
quickly- it is estimated to be somewhere
around $140 trillion, and this amount is
expected to cross the $200 mark before the
end of 2010.
• With the emergence of the concept of
globalization, the diversified world market has
been transformed into a single market, which
has resulted in the promotion of inter-country
trade. Because of this, there has been an
increase in stature and an increase in capital
flow, of which the United States of America,
Europe and Britain share almost 90%.
• In these circumstances, the US is playing a
vital role in the development of the global
capital market and, alone, is the destination of
85% of the net capital flow of the entire globe.
Britain also plays a significant role in the
market. On the other hand, because of the
rapid transformation of the Eurozone, its
emergence as a financial power is causing
positive changes. This could shift the pillars of
the world economy, as the Eurozone is
expected to soon stand on the same financial
platform with its counterparts.
Primary Capital Market
• The capital market is divided in two different
markets. These are the primary capital market
and secondary capital market. The primary
capital market is concerned with the new
securities which are traded in this market. This
market is used by the companies, corporations
and the national governments to generate
funds for different purpose.
• The primary capital markets is also called the
New Issue Market or NIM. The securities
which are introduced in the market are sold
for first time to the general public in this
market. This market is also known as the long
term debt market as the money raised from
this market provides long term capital.
• The process of offering new issues of existing
stocks to the purchasers is known as
underwriting. At the same time if new stocks are
introduced in the market, it is called the Initial
Public Offering. The act of selling new issues in
the primary capital market follows a particular
process. This process requires the involvement of
a syndicate of the securities dealers. The dealers
who are running the process get a certain
amount for as commission. The price of the
security offered in the primary capital market
includes the dealer,s commission also.
• Again, if the issue is a primary issue, the
investors get the issue directly from the
company and no intermediary is needed in
the process. For the purpose, the investor
needs to send the exact amount of money to
the respective company and after receiving
the money, the particular company provides
the security certificates to the investors.
• The primary issues which are offered in the
primary capital market provide the essential
funds to the companies. These primary issues
are used by the companies for the purpose of
setting new businesses or to expanding the
existing business. At the same time, the funds
collected through the primary capital market,
are also used for the modernization of the
business.
• At the same time, the primary capital market
is also involved in the process of creating
capital for the respective economy.
There are three ways of offering new issues in
the primary capital market. These are: Initial
Public Offering
• Preferential Issue.
• Rights Issue (For existing Companies)