Definition of capital market
Capital markets are financial markets in which assets are traded as well as financial contracts with long-term maturity. which is mostly between one and 30 years. Unlike the cash market where the maturity period is less than one year. Assets dealt with in the capital market are also characterized by high yield as well as risk ratio compared to the cash market and allow its clients from governments, companies, financial institutions, or even investors to obtain long-term financing to meet business and growth needs, It also allows venture capitalists to obtain a financial return on money lending.
The role of capital markets is to bring together venture capitalists and also the parties that need them. In addition to facilitating transactions on miscellaneous financial assets. The stock market, as well as the bond market, are the two most popular markets in the capital market.
Realistic examples of the capital market
There are a lot of capital markets in the world that allow the ability to trade a lot of financial assets by financial institutions as well as individual investors. Special exchanges have been undertaken to facilitate transactions among market participants. The New York and Nasdaq exchanges, as well as the London and Tokyo exchanges, are the world’s most popular and largest. In addition, we can trade financial instruments within the market for an offshore system similar to government and corporate bonds.
Who uses the capital market?
The capital market is used by entities such as governments and companies as well as financial institutions that want to finance their businesses and projects also in the medium and long term. in addition to entities that aim to generate a return on their capital both through debt instruments and the stock market.
Governments, as well as corporations and financial institutions, are the most important participants, with the diversity of each party’s objectives. Individual investors can also invest in the capital market by opening an account with a financial broker.
Here is an overview of the most prominent participants in this market:
- Governments.
- Commercial banks.
- Companies.
- Investment institutions.
The capital market is a fundamental pillar of the financial system as well as the global economy. It is where venture capitalists and entities seeking funding meet to ensure the continuation of their business.
The market is considered one of the largest financial markets, with the value of the bond market estimated at $128 trillion in the world, in contrast to the value of equity markets exceeding $95 trillion according to 2020 statistics.
Understanding how it works is very important for all people who want to invest in markets. The price movements of certain financial assets within this market may be indicative of the future trends of other assets.
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