Understanding Capital MarketsNovember 3, 2016
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.
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