Capital Market is a term that describes the manner in which financial resources like money are transformed from one form into another through market operations. The role of capital market in business is as the financial intermediary between lenders and borrowers. It is the lender who acts as the intermediate between two or more lenders. On the other hand, it is the borrower who acts as the lender by means of borrowing money from a bank or any other financial institute.
When the business is in operation, it needs funds to expand. But when the same cannot be achieved through personal production, business needs capital that is capable of paying for both new stock created as well as for increasing existing inventory. The role of capital market then becomes important. It is here that the financial institutions to lend funds. The amount is repaid from earnings of the business.
Since capital market has a great role to play in the smooth functioning of the economy, it has been the target of intense study and discussion by many experts. It has been noticed that the real estate market, corporate bonds, and commercial paper are some of the sectors that have witnessed sharp increases over the years. The rate of increase of prices has also been alarming. Though, the role of capital market in the economy does not end here. It is essential for every individual to take keen interest in the capital market so that he can avail maximum benefits from the same.
There is no denying the fact that capital market plays a crucial role in any normal economy. For instance, when a businessman buys shares, the company’s capital market value at that time may not be reflective of its future value. On the other hand, if an entrepreneur invests in a business, it is possible that part of his investment will be eaten up in the first few years of business.
Hence, it is important to understand the significance of the capital market and how it affects the economy. A firm needs to take an appropriate position in the capital market. It is imperative to make the best use of the opportunities that the economy presents. This can only be done through sound financial decisions and prudent investment.
Capital markets play a vital role in any state’s economy. The role of capital market in an economy is far reaching than most of us realize. If you wish to take advantage of the capital market and invest wisely, then you need to be aware of the current status of the market. Be a well-informed consumer. In addition to the role of capital market in any state’s economy, it also has an impact on the monetary policy of the country.