Capital Markets

Capital markets
Capital markets are financial markets that bring buyers and sellers together to trade stocks, bonds,
currencies, and other financial assets. Capital markets include the stock market and the bond market.
They help people with ideas become entrepreneurs and help small businesses grow into big companies.
Role of Capital Market in an Economy

Financial market deals about the raising of finance by various institutions through the
issue of various securities. Every business concern requires two types of finance. They
are Short-term or working capital requirements and long-term or fixed
capital requirements. The short-term or working capital requirements are raised or
borrowed in the money market through the issue of different securities such as bills,
promissory notes, etc.
Government raises the short-term funds through the issue of treasury bills. Banks play a
vital role in providing short-term funds. The long-term funds or fixed capital are raised
by companies by the issue of shares, debentures and bonds in the capital market. The
long-term funds or fixed capital are raised by companies by the issue of
shares, debentures and bonds in the capital market. Lets look at some of the importance
of capital market in economy.
Importance of Capital Market

1. It is only with the help of capital market, long-term funds are raised by the
business community.
2. It provides opportunity for the public to invest their savings in attractive securities
which provide a higher return.
3. A well developed capital market is capable of attracting funds even from foreign
country. Thus, foreign capital flows into the country through foreign investments.
4. Capital market provides an opportunity for the investing public to know the trend
of different securities and the conditions prevailing in the economy.
5. It enables the country to achieve economic growth as capital formation is
promoted through the capital market.
6. Existing companies, because of their performance will be able to expand their
industries and also go in for diversification of business due to the capital market.
7. Capital market is the barometer of the economy by which you are able to study the
economic conditions of the country and it enables the government to take
suitable action.
8. Through the Press and different media, the public are informed about the prices
of different securities. This enables the public to take necessary investment
decisions.
9. Capital market provides opportunities for different institutions such as commercial
banks, mutual funds, investment trust; etc., to earn a good return on the
investing funds. They employ financial experts who are able to predict the
changes in the market and accordingly undertake suitable portfolio investments.
Money market V/S Capital Market
Basis for
Money Market Capital Market
Comparison
It is the part of financial market Capital market is part of the financial

Definition where lending and borrowing takes market where lending and borrowing takes
place for short-term up to one year place for the medium-term and long-term
Money markets generally deal

Types of Capital market deals in equity shares,
in promissory notes, bills of
instruments debentures, bonds, preference shares,
exchange, commercial paper, T
involved etc.
bills, call money, etc.
The money market contains financial It involves stockbrokers, mutual funds,

Institutions
banks, the central bank, commercial underwriters, individual investors,
involved/types
banks, financial companies, chit commercial banks, stock exchanges,
of investors
funds, etc. Insurance Companies
Nature of
Money markets are informal Capital markets are more formal
Market
Liquidity of the Capital Markets are comparatively less

Money markets are liquid
market liquid
The maturity of financial The maturity of capital markets

Maturity period instruments is generally up to 1 instruments is longer and they do not have
year stipulated time frame
Since the market is liquid and the

Due to less liquid nature and long
Risk factor maturity is less than one year, Risk
maturity, the risk is comparatively high
involved is low
Basis for
Money Market Capital Market
Comparison
The market fulfills the short-term The capital market fulfills the long-term
Purpose
credit needs of the business credit needs of the business
The money markets increase the The capital market stabilizes the economy
Functional merit
liquidity of funds in the economy due to long-term savings
Return on The return in money markets are The returns in capital markets are high
investment usually low because of higher duration
Problems of share market of Bangladesh
Bangladesh is an agro-based economic country. Our country is not economically strong and industrially
developed. GDP and per capita income are also very low here. Most of our people are illiterate and they
are not aware to invest in the stock exchange. For a variety of reasons, stock exchanges are not
functioning well. Some of the reasons are as follows:
Low per capita income: Our per capita income is much lower. For this reason, cannot come from our
agro-hawed sectors to invest in the stock exchange. So investment is lower on the stock exchange and is
not performing well.
The lower rate of dividend: Companies in our country often declare the lower rate of dividend per share
that create a negative impression in the public regarding stock exchange and the companies. The
companies provide low dividend on the share that’s investors are reluctant to invest in the stock
exchange.
Low savings: Due to low income and lack of awareness, savings is not substantial. Besides we are a very
ravenous nation. We like to consume currently. Because of such problems we can save little that is not
enough to invest in stock market.
Lack of awareness: Most of our population is illiterate. They live from hand-to-most. How could they be
aware of share market? Our whole society is not aware of investing in the securities market. Many
educated people are not aware of the stock exchange, though they have enough savings.
Lack of institutional investment: Institutional investors constitute a huge part of the stock market. But
the tendency of such institutional investors is not always positive toward the stock exchange. But if they
would invest more in individual investors, the stock exchange could supply a huge capital to the
industries.
Lack of loan facilities: Commercial banks are not willing to disburse much loan for investing in stock
market and even they give a limited amount of loan that is not enough to form a substantial amount for
capital required in industrial sectors.
Few registered companies: The number of reregistered or public limited companies is not enough in our
country those who are in the stock market. Not having enough companies, the stock market is also
failing to draw the attention of general mass. If the govt policy is friendly the more and more companies
can be formed and the capital flow in stock exchange could be healthy.
Speculation and manipulation: Some clever traders or share market deceit the tender investors and
gain more from the stock market. They make the artificial shortage of stocks and leave the price level
high and sell their shares at the higher price. Again the lower the price and buy the huge number of
shares. By their speculative power, they always collect more profit from stock market where the
individual investors lose the profit.
Management inefficiency: Management of the stock market is not efficient enough. Here the rules and
regulations are not followed strictly and the management is unable to do so. It also unable to make the
timely decision that hampers the usual activities of companies as well as the investors. For having such
efficiency stock exchanges are not doing well for the economy.
Political unrest: Political situation in our country is not peaceful. It always creates turbulent and
conflicting. So, political activities, procession, strike etc. hamper the usual activities of the companies.
The investment of home and abroad can be withdrawn. In the bad cycle goes to stock market and the
investors are unwilling to invest anymore even withdraw capital from stock market which creates huge
problem in the stock market and the companies.
Lack of available information: Information flow in our country is not free. How many companies are
there, which one is profitable, which is not functioning well, which sectors are going to flourish etc.
inhumation is not available in the country. Because of lacking in technology, people are not getting
information properly that affect the investment in the stock exchange.
Insufficient Industrialization: Our country is not industrially developed. Without enough industry, it is
very difficult to create a strong economic base. Our economy does not produce much so that we can
fight in the foreign market. Lack of industrialization ultimately creates the vulnerable condition in
investment level thus weakening the stock market.
Because of these reasons stock exchanges in Bangladesh are not functioning well. To overcome those
problems the govt. should take proper steps for developing the stock market and the companies also.

Capital Markets

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Capital Markets

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Capital markets

Role of Capital Market in an Economy

Importance of Capital Market

It is the part of financial market Capital market is part of the financial

Money markets generally deal

The money market contains financial It involves stockbrokers, mutual funds,

Liquidity of the Capital Markets are comparatively less

The maturity of financial The maturity of capital markets

Since the market is liquid and the

Problems of share market of Bangladesh

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