Importance of Capital Market for the Economic Development of India

657 Words Feb 20th, 2013 3 Pages
Importance of capital market for the economic development of India Introduction:
The capital market is the market for securities, where
Companies and governments can raise long-term funds. It is a market in which money is lent for periods longer than a year. A nation's capital market includes such financial institutions as banks, insurance companies, and stock exchanges that channel long-term investment funds to commercial and industrial borrowers. Unlike the money market, on which lending is ordinarily short term, the capital market typically finances fixed investments like those in buildings and machinery.
Nature and Constituents:
The capital market consists of number of individuals and institutions
(including the
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Security markets also play a crucial role in economic growth and financial stability. The primary purpose of security markets is to serve as a mechanism for the transformation of savings into financing for the real sector, and hence constituting an alternative to bank financing. Recent local and global studies show that there is a positive correlation between the developments of stock markets and economic growth. Stock markets must be very efficient in the allocation of capital to its highest-value users. These markets also help to increase savings and investment, which are essential for economic development. If an equity market is informationally inefficient then investors face difficulties in choosing the optimal investment, because information on corporate performance is slow.
Role of Securities Markets in Economic Development The increasing stringency of terms on both domestic and international loans, the urgency of mobilizing domestic resources by means other than dent finance has been greatly identified. The alternative to debt finance, of course is equity market. Capital market refers to the market for long and medium term funds for the business enterprise. It can be divided into securities and non-securities market. Securities market in turn may be divided unto the markets for primary issues and markets for secondary trading of the issued securities. In the secondary market, the existing securities change from the investor to another. There is no additional

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