Capital markets: key issues and prospects

The capital market is a valuable tool in achieving economic progress within a community. Thanks to it, it is possible to facilitate the transformation of savings into investments and channel funds towards projects that will generate medium and long-term benefits.

Whether you are familiar with the term capital markets or not, studying the MBA in Madrid or the MBA in Valencia at Universidad Europea will help you become an expert in the world of finance.

In this article you will find out more about all the keys to capital markets and learn more about the subject in greater detail.

What is the capital market?

A capital market is a market in which companies trade shares, bonds and medium to long-term debt to obtain financing or make investments.

The capital market is based on two key objectives:

• To promote liquidity based on investment risk.
• To promote economic growth in various productive sectors.

Characteristics of the capital market

It is essential to know the characteristics of the functioning of the capital market in order to be able to operate in it and assess its impact on the global economy. Among its most important characteristics are the following:

• When an investor acquires shares in a company through the capital market, they also become a partner in that company, with their percentage of ownership being proportional to the capital invested.
• The capital market is highly liquid. This facilitates the execution of transactions for the purchase and sale of securities.
• There are risks involved in investing. Due to the fluctuating nature of returns in the capital market, the prices of securities can change abruptly and significantly.
• Related to the previous point, there can be no guarantee of a return on an investment.
• Within the capital market, there is no specific time set for the purchase or sale of securities. Thus, each individual decides when to enter into such transactions at his or her own discretion.

Types of capital markets

Depending on the product traded, we can divide the capital markets into different types:

Fixed income market.

Also known as the credit market. Within this market, products such as bonds, bills and notes are traded. In these fixed income instruments a fixed rate of interest is set, so that the investor can know the return he/she would get on that investment.

Equity market

This is the area where the buying and selling of shares takes place, commonly known as the stock market. In this process, companies that are listed on the stock exchange break up their capital into units called shares. Investors buy these shares in the belief that they will appreciate in value over time and allow them to make a profit.

This type of market is subdivided into:

• Primary market: also known as the securities issuance market. This is the market where newly created assets are traded.
• Secondary market: also known as the securities trading market. In this market, assets that have already been issued are traded, which facilitates the transfer of ownership of the financial assets traded.
• Derivatives market: securities that are "derived" from commodities, fixed income or equity securities or indices composed of some of these securities or commodities are traded in derivatives markets.

It is a very broad market with many investment possibilities, although they are mainly futures markets used for hedging, speculation or arbitrage.

Why is the capital market important?

With the help of the capital market, companies can raise finance and offer investors investment options tailored to their risk-return needs.

The three key reasons why the capital market has become such a valued tool in financial systems are:

• It makes debt issuance possible and offers companies a more efficient and less constraining form of borrowing.
• It makes it easier for individuals to create wealth and a possible investment for their future to invest in their retirement, buy a home of their own or save for university education.
• It provides the impetus for companies or entrepreneurs to turn ideas or innovations into real businesses or expand existing businesses. This process helps create jobs and fosters economic growth.

The capital market emerges as a powerful economic tool that facilitates the transformation of savings into investments, while driving economic growth and stimulating the financial progress of communities.  If you want to delve deeper into this field, Universidad Europea offers a wide range of Business and Technology masters where you can choose the one that best suits your interests.