Accounting technicians scheme west africa
D.6.1 Segments of the Capital Market
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| D.6.1 Segments of the Capital Market (a) Primary market: This is a market that deals with issue and sales of new securities of companies which are not previously quoted on the stock exchange market. The instruments used in the primary market are i) Public issue Ina capital market, company can borrow funds from primary market byway of public issue of shares and debentures. The cost of raising funds through public issue is high as compared to other methods. ii) Private placing The capital issue is sold directly to a small group of investors. Mainly institutional investors like insurance companies, banks, mutual funds, few private investors, etc. iii) Right issue In capital market, rights issue means selling securities in primary market by issuing shares to existing shareholders. iv) Offer for sale Ina capital market, the company sells the entire issue of shares or debentures to an issue house or merchant banker at an agreed price, which is normally below the par value. The shares or debentures are then resold by issue house/merchant bankers to be public. v) Obtaining term loans In capital market, companies can additionally raise long term cash by obtaining long-term loans, mostly from financial institutions. Term loans are also referred to as term finance which represent a source of debt finance and is generally repayable in more than one year but less than 10 years. 273 b) Secondary market: This is a market for trading of secondhand securities. In this market holders of existing shares who wish to sell them can have contact with individuals or institutions interested in buying through licensed stockbrokers. D.6.2 Functions of Capital Market The following are functions of an active capital market a) It is machinery for mobilising long-term financial resources for industrial development. b) The promotion of rapid capital formation. c) The provision of sufficient liquidity for any investor or group of investors. d) The mobilisation of savings from numerous economic units for economic growth and development. e) The encouragement of a more efficient allocation of new investment through the pricing mechanism. f) The provision of alternative sources of fund other than taxation for government. g) It is a necessary liquidity mechanism for investors through a formal market for debts and equity securities. Download 3.37 Mb. Share with your friends:
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