What are capital markets? Capital Markets are a part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments. Capital markets trade securities with lives of more than one year. Capital Markets are grouped into various forms. Read Also: Investor Constraints, Strategies And Policies
Before we look at the functions, here are a few examples of Capital Markets;
- New York Stock Exchange (NYSE)
- American Stock Exchange
- London Stock Exchange (LSE)
- Nairobi Securities Exchange (NSE)
Capital Market Functions
- Economic Function: The economic function of capital markets is to facilitate the transfer of money from savers to borrowers. For Example, mortgages, Treasury bonds, corporate stocks, and bonds. The majority not all of these investment options are long term with relatively low risk.
- Continuous Pricing Function: The continuous pricing function of capital markets means prices are available moment by moment. Continuous prices are an advantage for the investors. Investors are less confident in their ability to get a quick quotation for securities that do not trade often. This ensures that the investors only trade in the securities they are most likely to profit from other than investing in relatively inactive ones.
- Fair Price Function: The fair price function of capital markets means that an investor can trust the financial system. The function removes the fear of buying or selling at an unreasonable price. The more participants and the more formal the marketplace, the greater the likelihood that the buyer is getting a fair price. The price is therefore fairly determined to bear all the market factors at hand as at the time of the purchase or sale.