Question:
Explain the structure and components of the Capital Market.
Answer:
The capital market is a major component of the financial system, dealing with long-term investments. It consists of two segments:
- Primary Market: This is where new securities are issued and sold to investors directly by companies (e.g., Initial Public Offerings or IPOs).
- Secondary Market: It provides a platform for the trading of previously issued securities. The stock exchange is the key player in the secondary market, allowing investors to buy and sell stocks. Key instruments in the capital market include:
- Equity Shares: Represent ownership in a company and provide dividends to shareholders.
- Debentures: Long-term bonds issued by companies to raise capital.
- Bonds: Debt securities issued by the government or companies that pay fixed interest to investors. The capital market helps in wealth creation, economic development, and efficient allocation of resources by linking savers and borrowers in the economy.
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