The New York Stock Exchange today is almost synonymous with stocks and shares. This is where everyone (in the corporate sense), who is anyone; lists their stocks and trades them. You must have heard people talk about ‘stocks’ in both specific and general sense, while they do mean stocks but, they are also referring to all those companies listed on the stock exchange is New York, which is also known as the big daddy of the big leagues in the field of finance. This might be the scenario today, but it would be surprising to know that the first stock exchange did not involve any stocks whatsoever. There have been a number of evolution’s throughout the history leading to where the stocks stand today.
By definition, “A stock, is the capital raised by a company or corporation, through the issuing and underwriting of securities and equities.”According to Investopedia, “A stock is a type of security that signifies ownership in a corporation and represents claim on part of the corporation’s assets and earnings”. Today stocks are mainly of two types, common stock and preferred stock. While the preferred kind of stock gives the owner a higher claim on the assets and earnings; the common stock usually makes the owner entitled to vote at shareholder meetings and to receive dividends.
While historically speaking, it was in Belgium that the first stock market was opened, although at this time there were no real stocks to deal with. This was contemporary to the Venetians and various other Europeans who would carry slates with them, in the bid to buy and sell securities from the government. Although the most relatable, historical example would be that of the scores of East India Companies, that came to be during the period of Economic Imperialism. It was the governments of various countries and their countrymen namely, the French, Dutch and British, who had stakes in the profits of these companies, functioning in Asian and African continents. During this period, the only kind of trade possible was by sea and there were a lot of chances of valuable goods and wealth being lost to the ocean. Thus, to protect themselves from these calamities, the merchants and traders used to look for various investors, who would put their money both on the ship and the crew, thus gaining certain amounts of returns in the end.
During this time, it was the coffee shops all over Europe, that became the most important hubspots for merchants, brokers and investors to gather and buy and sell shares. The East India Company’s era was the time when a lot of evolution took place, in the stock market sphere; mainly because of the presence of a government backed monopoly. It was the Philadelphia Stock Exchange that came into being before the New York Stock Exchange, although the later proved to be more powerful. And the rest of it is history since then. Today with the emergence of NASDAQ, the field of stock exchange received a new lease on life, through this network of computers, which executed trades electronically. As it stands today, the field of Investment Banking is still considered to be one of the most challenging and rewarding fields. Professionals here are looked up to for their exemplary negotiation skills and finesse in closing multimillion dollar deals.
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When it comes to the field of Finance, one generally hears the term ‘market’ thrown around in different aspects of the conversation. Now, someone from a non-finance background would think of something like a grocery shop or a fresh produce market, while this isn’t necessarily incorrect, but when it comes to financial markets, they are far from just stores. This takes us to the topic in question here of the Capital Markets. These are technically financial markets, where buyers and sellers are involved but the produce refers to trade stocks, bonds, currencies and other such financial assets. In simple terms, these markets are spaces where people who want to start a business are provided funding, or already established companies are helped to grow bigger.
Elementary school taught us that the most indispensable entity, when you start a business is capital. Thus in the bigger scheme of things, it is this very financial capital that an entrepreneur would need to buy resources or supplies. There are two ways you can increase your capital, either by selling bonds or by selling stocks. While the latter part might be something that you rarely hear about but, selling of bonds by the government is one of the very common things one gets to hear. Selling of bonds refers to selling a piece of paper, which states that a firm has taken a loan from whomsoever and would be paying it back after a stipulated period of time. On the other hand stocks refer to certain percentage of ownership in any firm. Thus, basically stocks are sold in return of a percentile, ownership in a particular business. This explains why some people in the field of finance, seem to be anxious about the shares and stocks of certain firms.
Capital Markets also involve one very important process, which is known as the initial public offering. This is basically like a process where the issuing and selling of stocks takes place. All the shares in the company are sold to potential buyers and thus, by extension they become owners of that company to a certain extent. Now, of course the company’s main owner would be the person owning most of the shares here. This tactic is preferred by a lot of small business companies, vying to expand their business. This serves a dual purpose, the firm is able to expand all over the country and at the same time is able to create jobs for individuals. This it is evident that these capital markets are very important for the economic health of a country. The whole premise of buying and selling of a stock, depends upon the fact that the value of that particular stock is bound to increase in the future. These process are usually carried out by both private firms as well as governments and more often, are also used for building of hospitals, schools and so on. Thus if capital markets didn’t exist, business owners would have very less chances of growing their business, thus in turn there would be dearth of jobs and the economy would suffer. Capital Markets are responsible for creating circumstances, which are conducive to strengthening of of the national as well as global economy.
Determined to bridge the gap between the industry and academics, Imarticus Learning is a leading education institute offering specialized, training programs in the field of finance such as capital market certification.
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