Significance of Capital Market for an Economy

Significance of Capital Market for an Economy

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Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions. This is the long-term financial market of an economy, where capital are raised for a period of minimum 365 days and above

Significance of Capital Market for an Economy

• It is only with the help of capital market, long-term funds can be raised by the business community.

• Existing companies, because of their performance will be able to expand their industries and also go in for diversification of businessdue to the capital market.

• Capital markets help individuals generate wealth and invest in their futures.

• It provides opportunity for the public to invest their savings in attractive securities which provide a higher return.

• Also, capital market provides an opportunity for the investing publicto know the trend of different securities and the conditions prevailing in the economy.

• Further, capital markets provide the fuel for companies or entrepreneurs to turn an idea or industry innovation into an actual company or expansion for an existing firm.

• This in turn creates jobs and spurs economic growth.

• A well-developed capital market is capable of attracting funds even from foreign country. Thus, foreign capital flows into the country through foreign investments.

• Capital market is the barometer of the economy,by which one can assess the economic conditions of the country, which further helps government to take suitable action.

• Capital market provides opportunities for different institutionssuch as commercial banks, mutual funds, investment trust; etc., to earn a good return on the investing funds..

• They employ financial experts who are able to predict the changes in the market and accordingly undertake suitable portfolio investments.

• Capital markets match borrowers and investors, acting as shock absorbers during times of economic stress or market turmoil, when bank lending can dry up.

• By diversifying risk, capital markets provide a stable source of fuel for companies, governments and therefore economies.