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Capital Market
June 07 , 2012

A capital market is a market for securities , where business enterprises  and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets e.g., the money market. Components making the capital market include stock market for equity securities, commodities market for commodities like metals, bullion, cereal, oil and the bond market for debt securities. It does not refer to a physical market since most of the trading happens over electronic network these days.

The most important function of capital markets is to allow issuers of securities, that is those institutions that issue bonds, shares and other certificates to raise money from investors who make the Primary market. Primary markets make it possible for funding expansion of businesses and of new ventures.

Capital markets also encourage investors because they have an exit mechanism: when you need the money back from your investment there is a market to sell your investment. When you sell existing securities to other investors (and not the issuers themselves) the market is called as Secondary market.

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