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.