The Capital Market : An Overview

Financial markets are crucial to promoting greater economic efficiency by channeling funds from people who do not have a productive use for them to those who do. Well functioning financial markets are a key factor in producing high economic growth, and poorly performing financial markets, vice versa. Financial markets and intermediaries have the basic function of getting people together by moving funds from those who have a surplus of funds to those who have a shortage of funds.

There are several capital market instruments used by investors to make a profit. These capital market instruments include: debentures, bonds, stocks, fixed deposits, T-bills, foreign exchange and many others. The aforementioned capital market instruments are responsible for producing funds for firms and sometimes national governments. Two basic capital market instruments are stocks and bonds. Stocks are used in three different markets as the capital market instrument: the virtual, the physical, and auction markets. Bonds are traded in a separate bond market, also known as a credit, debt or fixed income market (Mapsofworld.com, 2009). In this market is also trade in debt securities, T-bills and debentures, which are more secured than others, however, they provide less return also.

The New York Stock Exchange traces its origin back 200 years. Centuries of growth and innovation the NYSE remains the world's foremost securities marketplace. Over the years its commitment to investors has been unwavering and its persistent application of the latest technology has allowed it to maintain a level of market quality and service that is unparalleled. The NYSE has grown to become the global marketplace of today.

IntroductionThe trading of company stock to the public has been going on for many, many years. Over the years the supply chain for buying and selling equity stock has changed with innovations in technology. Today, the old brick and mortar environment of equity trading is being replaced by virtual trading through websites like Ameritrade, E-Trade, and Trade Station.

The National Association of Securities Dealers Automated Quotations (NASDAQ) and the New York Stock Exchange (NYSE) are two of the largest and most known stock exchanges across the globe. Both of these stock exchanges handles and mediates the trade, sale, and purchasing of different stocks, bonds, and securities. While both of these stock exchanges have their own unique methods and forms of purchasing and selling stocks, they both serve the same purpose and function, which is a marketplace for the sales of stocks.

There are thousands of stocks on the stock market. It can be a daunting task deciding which stocks to invest in. Typically stocks are broken into two general categories: growth stocks and value stocks.

Describe the characteristics of different types of debt securities and be able to price them. Describe different theories of how interest rates are determined and explain the relationship between the term to maturity, risk, and interest rates. Understand the mechanics and conventions of the foreign exchange market and the motivation of different participants in trading foreign currencies. This involves:  Reading, interpreting and transposing FX quotations.  Calculating cross-rates.  Identifying the factors that determine the value of a currency Understand the characteristics of derivatives instruments (futures and options contracts), the different motivations for their use and how they are traded. Specifically you should  Recognise which types of futures / options contracts to use to hedge various risk exposures  Appreciate the various risks involved in trading derivative instruments  Describe the factors that determine the pricing of derivative instruments. Discuss and write about the links between the theory of financial markets and

Mostly everyone in today’s world has heard something about stocks. However, not a lot of people know what stocks are exactly, and what it is that they do. Many movies, such as Wolf of Wall Street, and Big Short, have been made to illustrate stock exchange market and give us a better picture on how that crazy lifestyle on Wall Street work. There are still many questions circling around that focus on how stocks are governed, and how they are regulated. To get a full understanding on just how stock exchange works, we will take it back to its origins, and slowly build our way up to getting a true understanding of their function.

In general, stock markets provide two basic functions. They serve as a primary market and as a secondary market. It is worth keeping in mind that stock markets could not serve as a primary market if they did not serve as a secondary market. The primary market function refers to a market where investors first have the opportunity to acquire a security. A company that goes public for the first time during its initial public offering (IPO) is selling on the primary market, meaning that the buyers are the first buyers of those particular shares (Investopedia, 2012). On the primary market, stocks are sold by the company to investors, usually through an intermediary like an investment bank.

Companies and governments use capital markets to raise funds for their operations. Capital markets include primary markets, such as IPOs that are placed with investors through underwriters, and secondary markets, in which all subsequent trading takes place. Government agencies in different countries regulate local capital markets, though some, especially exchanges, play some role in regulating themselves”. Primary markets are used for new issues and secondary markets are used for existing issues for trading purposes. Stocks are bonds are the basic Capital market instruments which are used in both primary and secondary markets. Secondary markets are securities purchases mainly from other investors rather than directly from the issuing companies themselves. Stocks are used as capital market instruments for physical, virtual and auction markets. Bonds are traded in the separate bonds markets.

Totally proficient stock exchanges are non-existent obviously yet this improvement helps us to better comprehend what is going ahead in the genuine world.in the not so distant future I will attempt to exhibit (and picture) how we can tell the securities exchanges are getting more effective.

I. Securities Markets A) Types of Securities Markets 1. The Primary Market a. Going Public: The IPO Process b. The Investment Banker’s Role 2. Secondary Markets B) Organized Securities Exchanges 1. The New York Stock Exchange a. Trading Activity b. Listing Policies 2. The American Stock Exchange 3. Regional Stock Exchanges 4. Options Exchanges 5. Futures Exchanges C) The Over-the-Counter Market 1. New Issues and Secondary Distributions 2. The Role of Dealers 3. Nasdaq 4. Alternative Trading Systems D) General Market Conditions: Bull or Bear Concepts in Review II. Globalization of Securities Markets A) Growing Importance of International Markets B) International Investment

Financial markets perform the essential function of channeling funds from economic players that have saved surplus funds to those that have a shortage of funds. At any point in time in an economy, there are individuals or organizations with excess amounts of funds, and others with a lack of funds they need for example to consume or to invest. Financial markets can be categorized as primary and secondary markets and debt and equity markets. Primary markets are markets in which financial instruments are newly issued by borrowers. Secondary markets are markets in which financial instruments already in existence are traded among lenders. Debt and equity markets are where the instruments are used primarily for financing are traded versus derivative

From the very time of its development, there have been many attempts to prove the validity of the Capital Asset Pricing Model. For instance, Black, Jensen and Scholes (1972) performed a test to check if securities are priced accordingly to their systematic risk. In order to test the theory that there was a positive linear relation between the expected return and beta, instead of the individual stock, they used monthly return data and portfolios. They obtained ten portfolios of monthly returns for 35 years and ranked them by risk securities, from the highest to the lowest. This sorting technique is now regularly used in empirical checks. They discovered that the intercepts α were regularly negative for the high-risk portfolios and always

A market place where buyers and sellers are engaged in the exchange of debt securities, usually in the form of bonds is called a bond market. A bond is a contract signed by both the parties where one party promises to return money with interest at fixed intervals.