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“AN INVESTMENT IN KNOWLEDGE PAYS THE BEST INTEREST”
Let us go back to the time when advanced electronic gadgets seemed unimaginable. History seemed dull and tedious when we were in school but you cannot proceed without finding those roots.
In late eighteenth century the securities of the East Indian Company were traded. Securities trading was un-organised until 19th century with Mumbai and Kolkata being the two trading centres. Capital market was not orchestrated at that time because the British government was not interested about the economic growth of the country.
WHAT IS A MARKET?
Where two parties, a seller and a buyer engage in exchange of goods, services and information. It is a setup where two or more parties are involved in buying and selling.
We talked about capital market along with plain and simple definition of market.
WHAT IS CAPITAL MARKET?
It is as simple as the concise explanation given for market. Capital market is a market where buyers and sellers are involved in exchange of financial securities such as stocks, bonds where participants are individuals or any institutions.
STOCKS – WHAT IS IT?
Suppose 5 people buy a cricket ball costing Rupees 500. All 5 of them contributed rupees 100 each so everyone has right or rather in financial words ownership on it. Stocks are also the same thing. It is a type of security that represents a claim on a corporations’ assets and earnings.
At some point or the other in life we have borrowed money – most of the time from our parents or sometimes from friends. Similarly financial institutions and government also need money, the former for expansion of their business and the latter for infrastructure and social purposes. An average bank cannot lend such amount so they issue bonds in public market, thousands of investors lend some portions of the capital needed. But why would an individual lend their hard-earned buck to anyone. The purpose is, they will be getting back a lump sum amount along with interest payments. These interest rate and final payment are made at a predetermined date. Some are made according to an agreement. Let’s not go so deep. We’ll talk about contractual agreements sometime later.
So summing up, capital market consists of two parts – Equity market and debt market.
EQUITY MARKET AND DEBT MARKET?
Equity and debt market is another version of stock market and bond market which we have discussed above. Under equity market, there are two distinctions – Primary market and Secondary market. Companies go for IPO (Initial public Offer) from private to public through distribution of shares in the former type while in the latter they expand more through mergers and acquisitions. I hope I was able to portray this basics ideas clearly.
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