The capital markets are one of the fundamental driving forces behind any thriving economy. The markets have grown in size and importance over the last 100 years and will continue to evolve in the future. Participants who tap into the capital markets do so to raise or sell securities for different investment reasons. Capital markets are financial markets that match the demand and supply for buying and selling of equity and debt instruments. The markets are comprised of Debt and Equity markets which together drive economic growth by allocating capital that can be used by companies and governments to create and fund investments and ideas.

 

Size of the Capital Markets

 

The North America Capital market is the largest in the world, and had a total value of $56.1 Trillion in December of 2012. The regions with the biggest capital markets after North America were Europe, Emerging Markets and Japan, with values of $39.1, $22 and 18.2 Trillion respectively. The debt markets make up a bigger portion of the capital markets across these regions, with the exception of emerging markets, which had equity markets making up a slightly bigger portion of their capital markets. The debt markets made up 66%, 75.1%, 48% & 79.6% of capital markets in North America, Europe, Emerging Markets and Japan respectively in 2012.

 

Capital markets are made up of the primary and secondary markets, with each providing unique services and roles. Both markets are connected by financial institutions and intermediaries that identify and match the needs of buyers and sellers.

 

• Primary Markets: The primary market is where governments and companies raise money by creating and selling new securities to buyers. These new securities could be new stock or bond issues.

 

• Secondary Markets: the secondary market is where the buying and selling of previously issued securities take place. This market is where the stock and bond markets are found, and is also where most of the activity in the capital markets occur.

 

Who are the buyers and sellers in Capital Markets?

 

• Buyers in the markets range from individuals to institutional investors such pension funds/endowments, companies and investors. These buyers come into the market to purchase stocks and bonds for various investing purposes, which can range from earning a return on the securities purchased, reinvesting of proceeds from gains realized from other investments or to gain exposure to certain companies or economic trends.

 

• Sellers in the market range from companies, government, institutional investors and entrepreneurs. These sellers issue debt or equity to raise cash for different investment needs which can range from realizing gains on investments, to the funding of investments and working capital needs. Stocks that are issued in the capital markets are usually traded on an exchange while bonds are traded through intermediaries or dealers.

 

Uses of cash raised in the Capital Markets

 

Cash that is raised in the capital markets drive economic growth, by helping governments and companies fund infrastructure projects and other ideas which in tend lead to job creation and growth. For example, money that is raised by municipalities help fund the building of bridges, airports, roads, libraries, schools and other amenities which benefit communities.

 

New companies that have ground breaking ideas, products or services also access the capital markets to help raise money to grow their businesses and bring their new products and services to the market place.