Capital market is a market for medium-term and long-term loans. The capital market serves the needs of industry and the commercial sector. It comprises all the institutions which are concerned with either the supply of or demand for long-term capital.
Instruments used in capital market
Instruments used in capital market are mainly stocks and shares. Stocks and shares are securities purchased by individuals, which is an evidence of contributing part of the total capital used in running an existing industry. At the end of a normal business year, stock and share holders receive dividend as a reward for contributing the money in running the business.
Institutions involved in capital market
Institutions involved in capital market include:
- Issuing houses.
- Insurance companies.
- Development banks.
- Building societies.
- National Provident Fund (NPF).
- Stock Exchange.
Advantages of capital market
- Provision of long-term loans: Capital market provides long-term loans to the private and public sectors for investments.
- Mobilisation of savings: Savings are mobilised in the capital market.
- Growth of merchant banks: The existence of capital market helps the growth and development of merchant banks.
- General running of the economy: The existence of capital market encourages the general public to participate in the running of the economy of the country.