what is the importance of a capital market and who are its different participants? introduce two types of capital market instruments.
Answers
Explanation:
The major participants in the money market are commercial banks, governments, corporations, government-sponsored enterprises, money market mutual funds, futures market exchanges, brokers and dealers, and the Federal Reserve. Commercial Banks Banks play three important roles in the money market.
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ATF AMP 21st jan webinar
Capital Markets – A look at its Types and Market Participants
Team Kalkine June 21, 2019 04:04 PM AEST
Capital Markets – A look at its Types and Market Participants
If you ask someone ‘what is a capital market?’’ they might answer no; however, if you ask someone ‘what is a share/stock market?’’ they might say yes. In layman terms, capital market is a place to buy or sell the financial securities; these financial securities include shares, bonds, ETFs, listed fund companies, stapled securities etc. Capital market is full of market participants and few regulators, which depends upon the jurisdiction of different markets.
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Australian Context
In Australia, the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) are the two government bodies; collectively both of these organisations oversee the capital markets and financial services. Australian Payments Clearing Association (APCA) regulates the payment services in Australia, and market participants include credit unions, superannuation funds, insurance companies, commercial banks, finance companies, public unit trusts, authorised deposit-taking institutions, institutional fund etc. Some stock exchanges in Australia include the Australian Securities Exchange, Bendigo Securities Exchange & National Stock Exchange of Australia.
Capital Markets
Capital markets is a financial marketplace for investors to deal in buying & selling of financial instruments; the most common capital markets include the bond markets and stock/equity markets.
Generally, short-term financial instruments like 3 Month Treasury Notes are bought & sold in the money market – a market for short term fixed income financial instruments.
The scope of capital markets is not limited to equity & bonds only; it also provides trading facilities for commodities and currencies as well. Capital market provides a venue to channelize savings & investments between the provider of capital and the organisations in need of capital. Capital markets hosts a lot of participants that include companies, insurance funds, pension funds, sovereign wealth funds, retail unit trusts, retirement trusts, brokers, custodians, depositories, retail investors, foreign investors, banks, stock exchanges, market intelligence/data providers, rating agencies, research houses and most importantly a regulatory body.
Capital markets facilitate an exchange of financial securities between two parties (trading) while the transaction is supported by a number of other market participants as well.
Market participants in the capital markets
Stock Exchange –Stock exchange is the prime facilitator of trading services between the traders and brokers on a regular basis while it also facilitates the listing of new shares from a company. There can be multiple exchanges in any country to facilitate the services. Stock exchanges provide complete transparency to the traders, investors and the general public, and a government regulator oversees the activities of a stock exchange. ASIC supervises the activities of stock exchanges in Australia.
Retail Investors – Retail investors are commonly referred to as individual investors or non-professional investors. These investors are mostly involved in the buying & selling of securities, mutual funds or Exchange traded funds. These investors trade on securities through brokers, and the capital invested by retail investors is relatively low against institutional investors.
Institutional Investors – An institutional investor is an organization that invests the capital on behalf of other investors; the scale of operations of these investors is mainly large. These investors possess specialized knowledge and resources than an individual investor, and maybe special rights as well. It should be noted that these investors have a high-risk appetite, and these investors also favour investments in derivatives, unlike retail investors.
Regulators – The regulators are the safe keeper of the ethics in any economy or business. In capital markets; these regulators play an essential role in safeguarding the interests of the investors while closely supervising the market activities and investigations. A market regulator closely watches the capital movements, while also investigates matters for potential unfairness.