FAQs on Capital Market-2

Question 1

1. What is a capital market and how does it function?

Accepted Answer

Ans. A capital market is a financial market where individuals and institutions trade financial securities such as stocks, bonds, and derivatives. It functions by facilitating the flow of capital between investors and businesses, allowing companies to raise funds for growth and investors to earn returns on their investments.

Question 2

2. What are the key participants in the capital market?

Accepted Answer

Ans. The key participants in the capital market include investors, issuers, intermediaries, and regulators. Investors provide capital by purchasing securities, issuers are the companies or entities that issue securities to raise funds, intermediaries such as brokers and investment banks facilitate the buying and selling of securities, and regulators enforce rules and regulations to ensure fair and transparent trading.

Question 3

3. What are the advantages of investing in the capital market?

Accepted Answer

Ans. Investing in the capital market offers several advantages. Firstly, it provides an opportunity to earn higher returns compared to traditional savings and fixed deposit accounts. Secondly, it allows investors to diversify their portfolio by investing in a wide range of securities. Additionally, investing in the capital market provides liquidity, as securities can be bought and sold easily. Lastly, it offers the potential for capital appreciation as the value of securities can increase over time.

Question 4

4. What are the risks associated with investing in the capital market?

Accepted Answer

Ans. Investing in the capital market carries certain risks. Market risk refers to the possibility of losing money due to fluctuations in the overall market conditions. Credit risk is the risk of the issuer defaulting on interest or principal payments. Liquidity risk refers to the difficulty of buying or selling securities at desired prices. Additionally, investors may face regulatory and operational risks. It is important for investors to assess their risk tolerance and diversify their investments to manage these risks.

Question 5

5. What are the different types of securities traded in the capital market?

Accepted Answer

Ans. The capital market trades various types of securities, including stocks, bonds, and derivatives. Stocks represent ownership in a company and provide a share in its profits and losses. Bonds are debt instruments that represent a loan made by an investor to an issuer, typically a government or corporation, and pay periodic interest until maturity. Derivatives are financial contracts whose value is derived from an underlying asset and include options, futures, and swaps. Each type of security has its own characteristics and risk-return profile.

Capital Market-2 Video Lecture - SSC CGL Tier 2 - Study Material, Online

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