Economics
Market for Capital
The market for capital refers to the buying and selling of financial assets such as stocks, bonds, and other securities. It is where individuals, businesses, and governments raise funds by issuing these assets and where investors purchase them. This market plays a crucial role in allocating capital to its most productive uses in the economy.
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8 Key excerpts on "Market for Capital"
eBook - PDFGlobal Capital Flows to Infrastructure Investments
The Institutional Investors' Perspectives
- (Author)
- 2014(Publication Date)
- Cuvillier Verlag(Publisher)
The borrowers (governments, businesses, and people who spend more than their income) borrow the savers’ investments that have been entrusted to the capital markets (Woepking, 2009). Capital markets, allow borrowers (both public and private), whose credit worthiness is more easily assessable, to obtain funds directly, without the involvement of an intermediary. At their most basic, capital markets consist mainly of markets for debt and equity but, as sophistication grows, they expand to provide deep and liquid secondary markets, and to encompass other financial products, such as derivatives (RBAB, 1995). The primary role of the capital market therefore, is allocation of ownership of the economy’s capital stock. In general terms, the ideal is a market in which prices provide accurate signals for resource allocation; that is, a market in which firms can make production-investment decisions and investors can choose among the securities that represent ownership of firms’ activities under the assumption that security prices at any time fully reflect all available information (Fama, 1970). Capital markets (in contrast to money markets) deal in instruments of a year or more, and include long-term debt obligations, such as corporate and government bond and equity instruments. Compared to money markets, capital market instruments involve longer maturities and relatively high degrees of risk; therefore, they must provide higher rates of return for investors (Michael, 1996). Capital markets can further be divided into a securities and a non-securities segment. Securities are more liquid than non-securities: they can be bought and sold more easily without large swings in price. For this reason, securities are attractive to individual and institutional investors.
eBook - PDF- William Boyes, Michael Melvin(Authors)
- 2015(Publication Date)
- Cengage Learning EMEA(Publisher)
top: ª Carsten Reisinger/Shutterstock CHAPTER 31 Capital Markets Preview The three broad categories of resources are land, labor, and capital. Capital refers to the equipment, machinery, structures, and buildings necessary to produce goods and services. This is the physical capital used to produce final goods and services. Financial capital plays an important role in the economy and often, when people talk about capital, it is financial capital to which they are referring. In this chapter both physical capital and financial capital will be discussed. FUNDAMENTAL QUESTIONS 1. What is the capital market? 2. What is the impact of technological change on the capital market? 3. What are stocks? How are stocks bought and sold? 4. What does a stock index represent? 5. What causes stock prices to rise and fall? 6. What causes bond prices to rise and fall? 7. What are bubbles and panics? ª Losevsky Pavel/Shutterstock.Com 673 Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 31-1 The Capital Market A firm will hire another worker when the marginal revenue product of that additional worker exceeds the marginal factor cost of the worker. In exactly the same way, a firm will decide to rent more building space or more equipment if the marginal revenue product of the additional capital exceeds its marginal factor cost. If a firm is going to own the building or the equipment, it is planning on using that capital for a few years and thus can think of it as renting it to itself.
No longer available |Learn more- (Author)
- 2014(Publication Date)
- College Publishing House(Publisher)
____________________ WORLD TECHNOLOGIES ____________________ Chapter- 7 Financial Market In economics, a financial market is a mechanism that allows people to buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis. Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one place, thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy. In finance, financial markets facilitate: • The raising of capital (in the capital markets) • The transfer of risk (in the derivatives markets) • International trade (in the currency markets) – and are used to match those who want capital to those who have it. Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends. In mathematical finance, the concept of a financial market is defined in terms of a continuous-time Brownian motion stochastic process. Definition In economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. ____________________ WORLD TECHNOLOGIES ____________________ The term market is sometimes used for what are more strictly exchanges , organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange.
No longer available |Learn more- (Author)
- 2014(Publication Date)
- Orange Apple(Publisher)
____________________ WORLD TECHNOLOGIES ____________________ Chapter- 11 Financial Market In economics, a financial market is a mechanism that allows people to buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis. Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one place, thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy. In finance, financial markets facilitate: • The raising of capital (in the capital markets) • The transfer of risk (in the derivatives markets) • International trade (in the currency markets) – and are used to match those who want capital to those who have it. Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends. In mathematical finance, the concept of a financial market is defined in terms of a continuous-time Brownian motion stochastic process. Definition In economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. ____________________ WORLD TECHNOLOGIES ____________________ The term market is sometimes used for what are more strictly exchanges , organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2015(Publication Date)
- Openstax(Publisher)
For most people, the tradeoffs for achieving substantial personal wealth will require effort, patience, and sacrifice. How Capital Markets Transform Financial Flows Financial capital markets have the power to repackage money as it moves from those who supply financial capital to those who demand it. Banks accept checking account deposits and turn them into long-term loans to companies. Individual firms sell shares of stock and issue bonds to raise capital. Firms make and sell an astonishing array of goods and services, but an investor can receive a return on the company’s decisions by buying stock in that company. Stocks and bonds are sold and resold by financial investors to one another. Venture capitalists and angel investors search for promising small companies. Mutual funds combine the stocks and bonds—and thus, indirectly, the products and investments—of many different companies. Visit this website (http://openstaxcollege.org/l/austerebaltic/) to read an article about how austerity can work. In this chapter, we discussed the basic mechanisms of financial markets. (A more advanced course in economics or finance will consider more sophisticated tools.) The fundamentals of those financial capital markets remain the same: Firms are trying to raise financial capital and households are looking for a desirable combination of rate of return, risk, and liquidity. Financial markets are society’s mechanisms for bringing together these forces of demand and supply. The Housing Bubble and the Financial Crisis of 2007 The housing boom and bust in the United States, and the resulting multi-trillion-dollar decline in home equity, started with the fall of home prices starting in 2007. As home values fell, many home prices fell below the amount owed on the mortgage and owners stopped paying and defaulted on their loan. Banks found that their assets (loans) became worthless.
eBook - PDFFinance for Development
Latin America in Comparative Perspective
- Barbara Stallings, Rogerio Studart(Authors)
- 2006(Publication Date)
- Brookings Institution Press(Publisher)
Firms and households also need access to bond markets to obtain long-term finance for investment and mortgages. Finally, an argument that has become increasingly common combines some of the justifications above: namely, domestic capital markets provide an alterna-tive to borrowing abroad and thus avoid the risks and volatility that the latter entails. The head of the International Monetary Fund (IMF) capital market division recently stated, “The efforts to develop local securities markets have been motivated by a number of considerations, especially the desire to provide an alternative source of funding in order to self-insure against reversals in capital flows.” 8 He went on to quote Alan Greenspan’s well-known comment that smoothly functioning bond markets can act as a “spare tire” to use when other sources of funds dry up. The new interest in capital markets has sparked an increasing amount of analysis aimed at better understanding how they operate. Although most of the studies concern equities, bond markets are also considered. Topics of interest include the relationship of capital markets to economic growth and investment, the circumstances under which they work best, their links to other forms of finance, and differences or similarities across regions. While strong overlaps exist with the literature we have already discussed on the functioning of banking sys-tems, some new topics are also introduced. Theoretical models are ambiguous on whether stock markets are positively or negatively linked to economic growth. For example, the literature contains argu-ments both for and against markets’ capacity to monitor firm behavior; this 114 Changes in Latin America’s Financial System since 1990 7. See Herring and Chatusripitak (2000, especially pp. 14–24). Others make similar argu-ments. 8. Hausler, Mathieson, and Roldós (2003, p. 21). debate is essentially the reflection of the one about banks versus markets.
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
The profit trend has since continued to increase each year, though at a less steady or consistent rate. (Source: Federal Reserve Economic Data (FRED) https://research.stlouisfed.org/fred2/series/CPATAX) Many firms, from huge companies like General Motors to startup firms writing computer software, do not have the financial resources within the firm to make all the desired investments. These firms need financial capital from outside investors, and they are willing to pay interest for the opportunity to obtain a rate of return on the investment of that financial capital. On the other side of the financial capital market, financial capital suppliers, like households, wish to use their savings in a way that will provide a return. Individuals cannot, however, take the few thousand dollars that they save in any given year, write a letter to General Motors or some other firm, and negotiate to invest their money with that firm. Financial capital markets bridge this gap: that is, they find ways to take the inflow of funds from many separate financial capital suppliers and transform it into the funds of financial capital demanders desire. Such financial markets include stocks, bonds, bank loans, and other financial investments. Click to view content (https://openstax.org/books/principles-economics-3e/pages/17-introduction-to- financial-markets) Corporate Profits After Tax (Adjusted for Inventory and Capital Consumption) 408 17 • Financial Markets Access for free at openstax.org LINK IT UP Visit this website (http://openstax.org/l/marketoverview) to read more about financial markets. Our perspective then shifts to consider how these financial investments appear to capital suppliers such as the households that are saving funds. Households have a range of investment options: bank accounts, certificates of deposit, money market mutual funds, bonds, stocks, stock and bond mutual funds, housing, and even tangible assets like gold.
- G. Mavrotas(Author)
- 2008(Publication Date)
- Palgrave Macmillan(Publisher)
Since the seminal contributions of Goldsmith (1969) and McKinnon (1973), economists have devoted considerable attention to the role played by financial intermediation in the process of real resource allocation and capital accumulation. Only very recently have economists focused their attention specifically on the role of stock markets in the process of economic development. Interestingly, these recent studies have not only revealed novel theoretical and empirical aspects of the channels of interaction between real and financial variables, but they have also been able to shed light on individual firms’ optimal financial choices in connection with economic development. Before turning to a synthetic description of these studies, it is necessary to agree, at the outset, on a definition of equity markets’ development, and to specify a measure of such development. In doing so, it is useful to observe that the development of a stock market can be identified by means of quantitative or qualitative measurements, or by a combination of the two. Different routes can be pursued. The primary route to follow in order to assess the expansion of a stock market is to look at changes in its dimension. A simple measure of a stock market’s size is the total value of all the shares in the market at each point in time (market capitalization), or the average of this value over a period. Market size is important because the level of savings mobilization and risk diversification depend strongly on this indicator. Of course, a measure of a stock market’s size needs to take into account the dimension of the economic system overall. For this reason, the typical measurement employed in empirical analyses is the ratio of market capitalization to gross domestic product (GDP) (market capitalization/GDP). Stock market size can also be measured by the number of listed companies in the stock exchange in each period.
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