Capital markets - SS3 Commerce Lesson Note

Capital markets refer to the financial markets where individuals, businesses, and governments can raise funds through the buying and selling of various financial instruments. These instruments include stocks, bonds, and other securities. In simple terms, capital markets are where investments and financing activities take place.

The primary function of capital markets is to facilitate the flow of funds from those who have excess capital (investors) to those who need capital (borrowers). This enables businesses and governments to raise money for various purposes such as expansion, research and development, or infrastructure projects.

In capital markets, individuals and institutional investors buy and sell financial instruments, primarily through stock exchanges or over-the-counter (OTC) markets. Investors purchase securities like stocks and bonds, representing ownership or debt in a company or government entity. These investments allow individuals and institutions to earn a return on their investment through dividends, interest payments, or capital appreciation.

Capital markets play a crucial role in promoting economic growth and development. They provide a mechanism for businesses to access the necessary funds for expansion and innovation. Capital markets also offer investment opportunities for individuals to grow their wealth and save for retirement or other financial goals.

Some key participants in capital markets include individual investors, institutional investors (such as pension funds and mutual funds), investment banks, stock exchanges, and regulatory bodies. These participants ensure that the markets operate fairly, efficiently, and with appropriate oversight.