The market where investment funds like bonds, equities and mortgages are traded is known as the capital market . The financial instruments that have short or medium term maturity periods are dealt in the money market whereas the financial instruments that have long maturity periods are dealt in the capital market.
The issues that have been mentioned above to explain the capital market theory may be discussed under the following heads:
Role of the Capital Market
The main function of the capital market is to channelize investments from the investors who have surplus funds to the investors who have deficit funds. The different types of financial instruments that are traded in the capital markets are equity instruments, credit market instruments, insurance instruments, foreign exchange instruments, hybrid instruments and derivative instruments. The money market instruments that are traded in the capital market are Treasury Bills, federal agency securities, federal funds, negotiable certificates of deposits, commercial paper, bankers' acceptance, repurchase agreements, Eurocurrency deposits, Eurocurrency loans, futures and options.
Capital market in the US
The capital market in the US is very advanced and uses very modern technologies in its operation. The capital market instruments are either traded in the Over-the – Counter markets or in the exchanges. The New York Stock Exchange is the oldest and the most prominent exchange in the US capital Market.
Initial Public Offering and the role of Venture Capital in the capital market
The companies raise their long term capital through the issue of shares that are floated in the capital market in the form of Initial Public Offering. The venture capital are the funds that are raised in the capital market via the specialized operators. This is also a very important source of finance for the innovative companies.