The term “Capital Market” is used to describe
the institutional arrangements for facilitating the borrowing and lending of
long-term funds. Usually, stress is laid on the markets for long term debt and
equity claims, government securities, bonds, mortgages, and other instruments of
long-term debts. Thus, the capital market embraces the system through which the
public takes up long-term securities, either directly or through
intermediaries. It consists of a series of channels through which the savings
of the community are mobilized and made available to the entrepreneurs for
undertaking investment activities.
Conventionally, short-term credit contracts
are usually classified as money market instruments, while long-term debt
contracts and equities are regarded as capital market instruments. In practice,
however, there is a thin line of demarcation between the money market and the
capital market, because quite often, the same institutions participate in the activities
of both the markets, and there is flow of funds between the two markets.
The major functions performed by a capital
market are as follows:
(a) Mobilization of financial resources on a
nation-wide scale.
(b) Securing the foreign capital and know how
to fill up the deficit in the required resources for economic growth at a
faster rate.
(c) Effective allocation of the mobilized
financial resources by directing the same to projects yielding highest yield or
to the projects needed to promote balanced economic development.
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