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What is the primary function of the capital market?
- a)To provide short-term financing to businesses.
- b)To facilitate the trading of existing securities.
- c)To regulate stock exchanges.
- d)To protect the interests of investors.
Correct answer is option 'B'. Can you explain this answer?
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What is the primary function of the capital market?a)To provide short-...
The primary function of the capital market is to facilitate the trading of existing securities.
- Facilitate trading of existing securities: The capital market provides a platform for buying and selling of stocks, bonds, and other financial instruments. Investors can trade these securities through stock exchanges or directly with other investors, allowing for liquidity and price discovery.
- Efficient allocation of capital: By providing a marketplace for securities, the capital market helps channel savings into productive investments. This efficient allocation of capital helps businesses raise funds for expansion and growth.
- Price determination: The capital market plays a crucial role in determining the prices of securities based on supply and demand dynamics. This price discovery mechanism ensures that securities are traded at fair market value.
- Risk diversification: Investors can diversify their portfolios by investing in a variety of securities available in the capital market. This helps spread risk and reduce the impact of market fluctuations on their overall investment.
- Capital formation: Companies can raise long-term capital by issuing securities in the capital market. This capital formation process enables businesses to finance projects, research, and development activities.
- Economic growth: The efficient functioning of the capital market is essential for economic growth as it provides the necessary funds for businesses to expand, innovate, and create employment opportunities.
In summary, the primary function of the capital market is to facilitate the trading of existing securities, promote capital formation, and contribute to the overall economic development.
- Facilitate trading of existing securities: The capital market provides a platform for buying and selling of stocks, bonds, and other financial instruments. Investors can trade these securities through stock exchanges or directly with other investors, allowing for liquidity and price discovery.
- Efficient allocation of capital: By providing a marketplace for securities, the capital market helps channel savings into productive investments. This efficient allocation of capital helps businesses raise funds for expansion and growth.
- Price determination: The capital market plays a crucial role in determining the prices of securities based on supply and demand dynamics. This price discovery mechanism ensures that securities are traded at fair market value.
- Risk diversification: Investors can diversify their portfolios by investing in a variety of securities available in the capital market. This helps spread risk and reduce the impact of market fluctuations on their overall investment.
- Capital formation: Companies can raise long-term capital by issuing securities in the capital market. This capital formation process enables businesses to finance projects, research, and development activities.
- Economic growth: The efficient functioning of the capital market is essential for economic growth as it provides the necessary funds for businesses to expand, innovate, and create employment opportunities.
In summary, the primary function of the capital market is to facilitate the trading of existing securities, promote capital formation, and contribute to the overall economic development.
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What is the primary function of the capital market?a)To provide short-...
The primary function of the capital market is to facilitate the trading of existing securities, such as stocks, bonds, and other financial instruments. It provides a platform for investors to buy and sell these securities, thereby allowing them to trade ownership stakes in companies and government entities.
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What is the primary function of the capital market?a)To provide short-term financing to businesses.b)To facilitate the trading of existing securities.c)To regulate stock exchanges.d)To protect the interests of investors.Correct answer is option 'B'. Can you explain this answer?
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