Answer to Question #201017 in Economics for Joseph

Question

Briefly outline major functions performed by the capital market and explain the importance of each functions for corporate financial management. How does existence of a well functioning capital market assist the financial management function.

Answer 1

Capital market is where both equity and debt instrument like equity shares, preference shares, debentures, bonds, etc. are bought and sold.

Functions of Capital Market:

• It acts in linking investors and savers.
• Facilitates the movement of capital to be used more profitability and productively to boost the national income.
• Boosts economic growth.
• Mobilization of savings to finance long term investment.
• Facilitates trading of securities.

Financial markets provide a sign for the allocation of funds in the economy based on the demand and supply through the mechanism called the price discovery process.