The Types of Capital Market:

There are two main types of capital market: primary market and secondary market.

1. Primary Market:
The primary market is where new securities are issued and sold for the first time. It is also known as the new issue market. In the primary market, companies raise funds by issuing new stocks or bonds. Investors can purchase these securities directly from the issuer. The main participants in the primary market are companies, institutional investors, and individual investors.

2. Secondary Market:
The secondary market is where already issued securities are bought and sold among investors. It provides a platform for investors to trade securities that have already been issued in the primary market. The secondary market is commonly referred to as the stock market or the stock exchange. Examples of secondary markets include the New York Stock Exchange (NYSE) and the Nasdaq. The main participants in the secondary market are individual investors, institutional investors, and traders.

The Function of Capital Market:

The capital market plays a crucial role in the economy by facilitating the flow of funds between investors and businesses. Some of the key functions of the capital market include:

1. Mobilizing Savings:
The capital market helps in mobilizing savings from individuals and institutions by providing them with investment opportunities. This allows surplus funds to be channeled towards productive uses, such as financing business expansion or infrastructure development.

2. Allocation of Capital:
The capital market enables the efficient allocation of capital by directing funds to businesses and projects with the highest potential for growth and profitability. This helps in promoting economic development and increasing productivity.

3. Facilitating Capital Formation:
The capital market facilitates the process of capital formation by providing companies with a platform to raise funds through the issuance of stocks and bonds. This enables businesses to finance their operations, invest in new projects, and expand their operations.

4. Price Determination:
The capital market plays a crucial role in determining the prices of securities. The forces of supply and demand in the market determine the prices at which securities are bought and sold. This provides investors with a fair and transparent pricing mechanism.

5. Providing Liquidity:
The capital market provides liquidity to investors by allowing them to buy or sell securities easily. Investors can convert their investments into cash quickly, which enhances the attractiveness of securities as an investment option.

6. Risk Sharing:
The capital market allows investors to diversify their investment portfolios and share risks. By investing in a wide range of securities, investors can reduce the impact of losses in one investment by gains in others.

In conclusion, the capital market plays a vital role in the economy by mobilizing savings, allocating capital, facilitating capital formation, determining prices, providing liquidity, and enabling risk sharing. It is a crucial component of the financial system that supports economic growth and development.