Capital Markets

Question 1

are the exchange system platform that transfers capital from investors who want to employ their excess
capital to businesses that require the capital to finance various projects or investments.

Answer 1

Capital Markets

Question 2

Types of Capital Markets

Answer 2

Equity Securities
Debt Securities

Question 3

• are traded on the stock market and are essentially ownership shares of a business or venture.
• However, the money that you invest in equity securities isnotrequired to be paid back to you by the business.

Answer 3

Equity Securities

Question 4

are traded on the bond market and are IOUs that can come in the form of bonds or notes. They essentially represent the borrowing of money that will be paid back at a later date with interest.

Answer 4

Debt Securities

Question 5

Securities are bought on these two types of markets

Answer 5

Primary Market
Secondary Market

Question 6

is when a company directly issues the securities in exchange for capital.

Answer 6

Primary Market

Question 7

is when the security holders trade with other investors in a transaction that is separate from the issuing company.

Answer 7

Secondary Market

Question 8

Functions of Capital Markets

Answer 8

Allocation of Capital
Risk Management
Price Discovery
Facilitation of Economic Growth
Liquidity Provision

Question 9

One of the primary functions of capital markets is the efficient allocation of capital. Investors channel their savings into productive investments, enabling businesses to finance new projects, research initiatives, and operational expansions.

Answer 9

Allocation of Capital

Question 10

• Capital markets offer diverse financial instruments, such as derivatives, which facilitate risk management for investors and businesses.
• Through options, futures, and swaps, market participants can hedge against adverse price movements, mitigate volatility, and safeguard their investments.

Answer 10

Risk Management

Question 11

• Capital markets serve as platforms for price discovery, where the forces of supply and demand interact to determine asset prices.
• Through continuous trading and information dissemination, markets reflect investors’ collective expectations, assessments of intrinsic value, and macroeconomic factors.

Answer 11

Price Discovery

Question 12

By connecting investors with capital-seeking entities, capital markets play a pivotal role in fostering economic growth and innovation.

Answer 12

Facilitation of Economic Growth

Question 13

Capital markets enhance liquidity by enabling investors to buy and sell securities freely. Liquid markets ensure that investors can exit positions quickly and at fair prices, promoting market efficiency and reducing transaction costs.

Answer 13

Liquidity Provision

Question 14

• there is less liquidity, meaning that it is more difficult to buy and sell securities.
• It leads to longer time horizons for investors, it can take much longer to find a buyer.
• Investors are compensated for the lack of liquidity and lack of information. There are usually much greater returns from private capital markets.

Answer 14

Private Capital Markets

Question 15

Capital and Financial Market Products

Answer 15

Centralized
- Equity securities
- Foreign exchange
- Some derivative securities

Decentralized
- Commodities
- Debt securities
- Other Derivatives