The Importance Of Capital Markets
Capital markets are the markets used for the trading of equity and debt instruments. The markets are used for trading long term financial securities between individuals and institutions. Anyone can trade on the markets but the traders are mainly made up of large corporations, government, banks, asset managers etc. Capital markets are very important to a functioning economy as capital is key for creating economic output. People often think that capital markets don’t affect the ordinary working man but it effects everyone’s lives both now and in the future. If markets were to crash, which have happened numerous times through the years, it hinders every person, company, government in that country or worldwide. The recession in Ireland in 2008 …show more content…
When companies receive the money, they will issue share certificates to the investors.
The Secondary market is the market where previously issued securities and instruments such as bonds and shares are traded. The secondary market must be highly liquid for the secondary market to reach its potential. The best way to keep its liquidity it’s the centralise as many investors as possible into the one market place. This is how the stock exchanges began. The New York Stock Exchange allows investors to make their buy and sell transactions in the one place. Another area where the secondary market is utilised would be where mortgages are sold by banks to investors of the likes of Freddie Mac and Fannie Mae. The major stock exchanges are the most well-known example of the secondary market. The likes of the New York Stock Exchange or the ISEQ offer a central market for investors who own stocks to trade on the exchanges their stocks are listed.
Without the secondary market, the primary market would not be as effective for raising
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A good example of how companies can refinance debt through capitals market would be the deal the ESB carried out in January of 2017. They issued €500 million worth of bonds to refinance some of their debts. The bonds they offered had a coupon/interest rate of 1.75% on 12-year bonds. This transaction erased debts of €300m that had an interest rate of 6.25%. They are now considering further issuing of bonds to erase more debt in order to increase profits further.
Every working person who invests a percentage of their salary into pensions will do so through a company scheme with organisations like Invesco. These companies will assess individuals risk status and recommend investments to companies. Depending on risk status such as age they may recommend investing in bonds of AAA/AA+ bonds to guarantee a close to 100% return of investment. This type of portfolio investment would be for people who are close to retirement and wouldn’t have the same time to invest in shares that can fluctuate a lot more. For someone in their thirties, investors may recommend more of a riskier investment in the share market as they would have a longer period of time to allow for drops in
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