Question

Explain any two functions of Capital Market.

Answer 1

1. Savings and Capital Formation: In the capital market, various types of securities help to mobilize savings from various sectors of the population (Individuals, Corporate, Govt., etc.). The twin features of reasonable return and liquidity in the stock exchange are definite incentives to the people to invest in securities. This accelerates the capital formation in the country.
2. Permanent Capital: The existence of a capital market/stock exchange enables companies to raise permanent capital. The investors cannot commit their funds for a permanent period but companies require funds permanently. The stock exchange resolves this clash of interests by offering an opportunity to investors to buy or sell their securities, while permanent capital with the company remains unaffected.