{"id":189393,"date":"2019-07-03T17:00:21","date_gmt":"2019-07-03T11:30:21","guid":{"rendered":"https:\/\/staging-imarticus.kinsta.cloud\/?p=189393"},"modified":"2024-06-26T10:46:38","modified_gmt":"2024-06-26T10:46:38","slug":"what-is-the-role-of-capital-market-in-economic-development","status":"publish","type":"post","link":"https:\/\/imarticus.org\/blog\/what-is-the-role-of-capital-market-in-economic-development\/","title":{"rendered":"What is The Role Of Capital Market in Economic Development?"},"content":{"rendered":"

What Is The Role Of the Capital Market in Economic Development?<\/strong><\/h2>\n

Capital Markets play a crucial role to keep the economy functioning and the economy would collapse without it. The most advanced economies have the most efficient capital markets.<\/span><\/p>\n

So, how does the capital market work and why is it so important for the country’s development?<\/span><\/p>\n

Literally, the capital market is the kind of financial marketplace that facilitates the buy and sell of a wide range of long-term financial securities such as equity and debt along with short term funds such as treasury bills<\/a>. The market where these securities are created is called the primary market and where already existing securities are traded is called a secondary market. Capital markets are the most important components and form a considerable proportion of the present-day economy.<\/span><\/p>\n

Well-functioning markets ensure that both corporations and investors get or receive fair prices for their securities.\u00a0<\/span><\/p>\n

An effective financial sector is vital for economic growth in a modern new-age digitized economy. It pools together the domestic savings to mobilize and provide capital for productive growth-related projects and industries. In the absence of such a system, most industries would never be able to grow and would fail for want of funds and thus growth and development would be directly affected and impacted.<\/span><\/p>\n

The basic channels connecting the economy to the capital market discussed in any Capital market course are thus also connected to the economic growth, growth, and development of industries or facilities and economic measures for funding such growth.<\/span><\/p>\n

Such financing methods are:\u00a0<\/strong><\/h3>\n

Direct financing:<\/strong> Here the agents facing a money deficit interact and deal with those agents with a monetary surplus without intermediaries.<\/span>
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Indirect financing:<\/strong><\/h3>\n

In this method intermediaries function between the two agents and ensure the fund’s needs are catered to. Such intermediaries could take the form of banks, insurance companies, investment funds, NBFCs, pension funds, and such. They not only provide funds but also securitize investments and purchase of assets in a major move to better capital demands.<\/span><\/p>\n

Any capital market course<\/a><\/strong> should begin with answering questions related to what the Debt CM is. Most companies prefer to turn to DCM markets when they need funds for expansion but do not want to trade in their private ownership tag.<\/span><\/p>\n

The DCM market is ideal since they deal with the sale of units called bonds. For the investors in bonds, this is a fixed-income investment where on redemption they get their money back along with attractive interest. The investment is low-risk and earns a fixed interest rate. Such funds are a short-term boon for firms needing funds for expansion without the dilution of ownership. It’s a win-win deal for both.<\/span><\/p>\n

The different types of bonds:<\/strong><\/h3>\n

The bond types are risk-of-default related and can be categorized as<\/strong><\/h3>\n