Question

What are the features of capital market instruments?

Answer 1

Capital market is a market for medium and long term funds. It includes all the organizations, institutions and instruments that provide long term and medium term funds.The features of capital market are as follows:

1. Link between Savers and Investment Opportunities:

Capital market is a crucial link between saving and investment process. The capital market transfers money from savers to entrepreneurial borrowers.

2. Deals in Long Term Investment:

Capital market provides funds for long and medium term. It does not deal with channelising saving for less than one year.

3. Utilises Intermediaries:Capital market makes use of different intermediaries such as brokers, underwriters, depositories etc. These intermediaries act as working organs of capital market and are very important elements of capital market.

4. Determinant of Capital Formation:

The activities of capital market determine the rate of capital formation in an economy. Capital market offers attractive opportunities to those who have surplus funds so that they invest more and more in capital market and are encouraged to save more for profitable opportunities.