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Nov 09 2012

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Functions of Capital Market

capital market, stock market, secondary market, primary marketCapital market is one of the major influential economic factors of every financial market. Capital market is a market for financial assets which deal with short term and long term securities. Capital market is an institutional arrangement to borrow and lend money for a longer maturity. Capital market provides long term debt and equity finance for the public and the private sector. Capital markets may be classified into two types namely stock market and bond market. Stock market may be again of two types namely common stock market and preferred stock market. Bond market may also be of three types namely corporation bond market, Treasury bond markets and municipal bond market.

Functions of Capital Market

  • Providing adequate permanent floor for performing transactions in common stock or preferred stock. As a result, rate of selling and buying stocks and liquidity and transferability of invested stocks increases along with increasing in the stability in stock prices.
  • Ensuring adequate volume of trade leading to liquidity.
  • Providing reasonable level of fairness in deal making of trading.
  • Allowing the determination of actual transfer prices of stock on the basis of corporate firms’ present and future profitability; since the market helps creating competitive stock market.
  • Helps increasing the transparency, accuracy and safety of transactions by following certain norms and disciplines while allowing trading.
  • Ensuring arrangement of investment in productive sectors of the economy after accumulating surplus money of the individuals and organizations.
  • Helps equitable distribution of capital in any specific industry, factory.
  • Protecting the interests of the investors.
  • Helps government in framing policy in the interests of the investors and industrial growth.
  • Registering and monitoring stock prices and
  • Providing adequate instruments and technical aids for prompt and smooth trading.

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