Capital market and raising funds posted by
What does capital market mean? How does the company raise funds in capital
Capital market is the market in which financial securities have been traded
between the individuals and the institutions. These institutions sell
securities on capital markets in public and private sectors to raise funds.
This market is composed of both primary and secondary markets. The parts of
capital markets are both stock and bond markets.
Large Corporation grow by doing innovations and by raising the capital to
finance expansion. Corporations have five primary methods which are used to
raise funds in capital market.
1) Issue of bonds : - Bond is an amount of money which has to
be given at a certain date or dates in future. Bondholders receive interest
payments at fixed rate and specific dates. Corporate issues bonds because
interest rates which must pay investors are lower than rates of borrowing and
holders can sell bonds to someone else before they due.
2) Issue of preferred stock : - company choose this to raise
capital. If a company have financial trouble the buyers of shares gets special
status. If profits are limited then owners will be paid the dividend after
bondholders receive the interest payments.
3) Sell of common stock : - if financial condition of the
company is good then it can raise the capital issue the common stock. Bank
helps the companies to do the investment and issue stock. Investors’ gets
interested if the company pays large dividends and offers steady income. Value
of shares increases if investor expects the corporate earning to rise.
4) Borrowing:- companies used to raise short term capital by
getting the loans from banks or other sources. After good market run the
profits which the company gets can be used to finance their operating by
retaining their earnings.