The Financial Market in Bangladesh an Overview of Capital Market.Doc
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The Capital Market in Bangladesh: an overview on volatility and trends
1.0 Introduction 1. Importance of Study
Financial markets are facilitated through the flow of funds in order to finance investments by corporations, governments, and individuals. Financial Institutions are the key players in financial because they serve as intermediaries that determine the flow of funds. So, among them we have to channelize the fund in proper way to give the opportunity for investment in Bangladesh.
2.0 Capital Market in Bangladesh
2.1 Capital Market
A capital market is a market debt or equity based, where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods…show more content… Declines in the value of a number of companies as the result of higher interest rates would lower the overall the overall stock market value.
Additional effect of higher interest rates is that it would lower the level of investment or capital expenditures. Lower investment levels would have a wider impact across a number of companies in various industries. Earnings of stocks are dependent heavily on investment made by other firms, commonly known durable goods and it would be more affected than others. Therefore, an increase in interest rates would effectively dampen the stock market due to lower valuation multiple and lower earning potential of companies listed on the market.
Other avenues where changes in interest rates could affect stock market is through the valuation of stocks. Stocks are commonly valued based on either a multiple of earnings (as discussed previously), or a present value of their future cash flows. Higher interest rate means a higher hurdle rate or the discount for investment returns. Thus higher interest rates would decrease the present value of future cash flows. A lower present value of future cash flows leads to lower stock prices and could therefore decrease the overall stock market.
It is interesting to note in addition to above, the cause for changes in interest rates. If the goal of the Federal Reserve in rising interest rate is to limit inflation pressures due to