The
role of capital market is largely regulated by the performance of stock market and bond market. The major role of capital market is to raise long-term funds for the governments, banks and corporations.
The role of capital market is to provide a platform for the trading of securities. The securities traded in capital markets may be stocks or bonds. The stocks markets and bond markets are the parts of capital markets. The corporations, banks and governments issue stocks and bonds in order to raise funds. The investors can invest in the capital markets by purchasing stocks or bonds. Like other financial markets, the capital market is also driven by some risks and loop holes. The investors need to understand the market trend properly before investing in the capital market. There are various market indices available that reflect the performance of capital market.
Role of Capital Market is Regulated
The
role of capital market is monitored by the financial regulators. Every capital market in any country is under the regulations of corresponding organizations. The main purpose lying behind it is to protect the investors against fraud or deception. The major aims of such financial regulatory bodies are – to minimize the financial losses, enforcing the applicable laws, issuing license to the financial service providers and to protect the clients.
Role of Capital Market Influencing International Trade
The role of capital market also influences the international trade in a large way. After the liberalization of the economy, the concept of capital market investment is not confined within a country boundary only. Now individuals and companies of any country can invest in the capital market of other countries, under some regulations. This has enhanced the international trade substantially over a period of time.
The
role of capital market is also dependent on the two markets – primary market and secondary market. The primary market deals with the newly issued securities while the secondary market handles the trading of securities issued earlier. The primary capital market generates new long term capital. The secondary capital market needs to be highly liquid in nature as the securities are generally sold by the investors. High liquidity and transparency of the secondary market eventually ensures a liquid and transparent financial market.