Capital Market defines the operations of buying and selling financial assets (mostly long-term securities). Either institutions or individuals can participate in the buying and selling operations.
Capital market helps to accumulate funds from savers and redirect them to certain institutions for further investment and revenue. Savers, or suppliers, are usually pension funds, religious institutions, and charitable foundations. Those who use funds and invest them are usually non-financial companies and governments.
The capital market consists of two parts: primary and secondary. The trade of newly issued stocks and other securities is under the primary market.
The exchange of contemporaneous security is under the secondary market. Dependent on the nature of security being traded, the capital market also falls into two other categories: stock market and bond market.
Modern capital markets are operated by the computerized electronic trading system. Stock exchanges, investments banks, and government departments can host such programs.
As an example, when a government wishes to raise long-term finance, it will sell the bonds in the capital market. When a company decides to raise assets for long-term investment, it will issue bonds or shares. If issuing shares, the company won’t face debt increasing. Issuing bonds is safer, though. Bonds are more immune to falling in price.