Capital market

The term capital market is used to summarize the financial market for medium and long-term procurement of capital. Companies, households and even the state use the capital market to finance investments through loans, for example.

Definition / explanation

Der Kapitalmarkt fasst sämtliche Institutionen und Transaktionen zusammen, die aus supply and demand von mittel- und langfristigem Kapital bestehen. Der Unterschied zwischen dem Kapitalmarkt und dem Money market liegt in der Langfristigkeit der Kapitalüberlassung, das in der Regel über eine Laufzeit von über einem Jahr verfügt.

Actors in the capital market

The participating parties in a capital market are divided into providers of capital, i.e. the providers of capital, and capital takers, i.e. the buyers of capital. The third participating party are the intermediaries, i.e. the brokers of capital.

Financier - The investor provides debt or equity and receives a variable or a fixed amount for this, which can consist of dividends or interest on debt, for example.

Borrower - The borrower needs capital for a long-term investment and pays the agreed variable or fixed amount to the investor.

Capital broker - The capital broker ensures that the capital provider and the capital taker come together and receives a so-called broker fee, which is usually also paid by the capital taker.

Financing stocks of the capital market

The capital market is divided into different financing titles that differ in terms of payment, risk and deadline. These titles include, for example:

shares - which represents an investment in a stock corporation and ensures membership rights

Bonds - represent the claims titles of corporations, credit institutions and others

Participation certificates - which represent a participation in stock corporations without membership rights

Primary and secondary market

While the primary market is used to obtain information from the respective securities issuer, various securities transactions are carried out and also implemented in the secondary market.

The primary market, also known as the issue market, is therefore of great importance for investors, because this is where the offers for new securities that are sought by borrowers can be found. The secondary market is also known as the circulation market and cannot be localized.

The economic importance of the capital market is to be found in the fact that the capital providers provide long-term funds, which can consist of equity or debt, and receive a variable or fixed amount for this. For this paper, the secondary market is of great importance.

Summary

  • A distinction is made between the medium and long-term procurement of financial resources in the capital market
  • Participating parties include the capital providers, the capital takers and the capital brokers
  • Financing stocks include stocks, bonds and participation certificates
  • The capital market is divided into the primary and the secondary market
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