Importance Of Capital Markets

Abstract

Capital Markets will be characterized as markets in which money will be given to period longer than a year. Capital markets have various members including individual financial specialists, institutional speculators, for example, pension funds and mutual funds, municipalities and governments, companies and organizations and banks and financial institutions.

Capital markets regularly include issuing instruments such as stocks and securities for the medium-term and long-term. In this respect, capital markets are different from money markets, which is the markets for financial instruments with maturities not more than one year.

Capital business sector helps in capital development. Through mobilization of ideal resources, it produces

First, the capital market acts as a link between savers and investors. Second, With the development of capital market, the banking and nonbanking institutions provide facilities to put cash in securities exchange, which urge individuals to save more. Third, The capital market facilitates lending to the businessmen and the government and in this manner encourages investment. It serves to assemble the tremendous capital needed for business. It is a critical and efficient means to channel and mobilize funds to enterprises, and provide an effective source of investment in the economy. Fourth, capital market smoothens and quickens the procedure of economic development. The correct allotment of assets results in the expansion of trade and industry in both public and private sectors, consequently advancing economic growth in the nation. Fifth, The capital market tends to balance the values of stocks and securities and decrease the variances in the costs to the base. The procedure of stabilisation is encouraged by giving cash flow to the borrowers at a lower premium rate. Lastly, Capital market helps the Government to close resource gap. (Dr. Nikhil Kothari, 2014), (UNIVERSITY OF CALICUT,

Demand-following hypothesis is a causal relationship from economic growth to financial development. Here, as the real economy grows, an increasing demand for financial services might induce an expansion in the financial sector. (Journal of Development Economics, October 2003)

The evidence below (Table 1) shows the causality relations between financial and economic development which we can see that it is unclear whether financial development promotes economic growth or economic growth promotes financial development.

Table 1: Summary of the Results with Cointegration and Granger Causality tests Ghazi BOULILA and Mohamed TRABELSI (October 2003)

We understand an overview of capital market already, let’s focus on the capital market in different countries for you to understand clearer about capital market. We provide examples of capital market of three advanced countries which are United States, Japan and