Capital market

The capital market is the financial market for medium-and long -term capital and serves businesses, households and the State to finance investments and other issues. This includes for example, the market for long-term loans, referred to as the bond market and the stock market, the market for venture capital.

• 6.1 General functions
• 6.2 transformation functions 6.2.1 Quantity transformations
• 6.2.2 Maturity transformation
• 6.2.3 Lot size transformation
• 6.2.4 Risk Transformation

Definition

The capital market consists of the totality of all the institutions and transactions that serve to matching supply and demand for medium - and long-term (financial) capital. He is often regarded as a securities market, which both equity securities, such as shares, as well as fixed income securities such as bonds involves. The distinction from the money market is more than a year, due to the long-term nature of the capital investment, for as a rule, whereby both money market transactions, as well as derivative transactions can be excluded with shorter maturities.

Depending on your view, either the credit market are attributed to the capital market or the classical capital market is distinguished from the credit market. In comparison to the "classical capital market ", the credit market the majority of the capital financing of the economy available (60 per cent ).

Actors

The actors of "classic capital market " can be distinguished in investors, borrowers and intermediaries. The investors, which are also referred to as a capital provider, set the capital borrowers for investment purposes money. The borrowers compete as buyers of capital in the capital market. The role of intermediaries, also called mediator is to facilitate the balance between capital supply and demand, by conducting transactions in the cash flows of capital demanders and providers, improve the level of information and support execution of transactions.

Financing title

On the capital market financing titles are available with different payments, risks and deadlines and demand. Among other things, these titles can be found:

• Shares

A stock is an equity securities, which represented the proportion of a stock corporation and membership rights.

• Bonds

Bonds are securitized debt instruments against corporations, banks or other companies.

• Participation certificates

This type of financing item represents an interest in a corporation, but without membership rights.

Distinguishing criteria

Capital markets are differentiated by the degree of organization and the division into primary and secondary markets.

Main segments

The capital market is divided in practice into two main segments, the primary market and the secondary market. The primary market provides information about the securities issuer and the capital market securities and is therefore particularly suitable for investors of great importance. The secondary market includes the implementation and settlement of securities transactions.

The primary market deals with the supply of newly brought out securities that are to be sought after by investors. This market is also known as the emissions market, since under this segment, the initial placement of shares and bonds is to be understood during the emission trends. The location of the primary market can not be localized and thus belongs to the OTC market, as investors widespread residential and commercial seats have both at home and abroad and any legally competent person is entitled to act in securities.

The secondary market, also referred to as circulation market, including securities trading between market participants, so the resale of the newly issued securities by the first purchaser to the new investors. The most popular place on the secondary market, the stock exchanges.

Degree of organization

Due to the degree of organization markets can be particularly distinguished. A distinction is made in organized markets and in non -regulated markets.

Organized markets

A highly organized capital market, like the stock exchange, organized market is characterized by low cost, fast, safe and always tradable, state- approved transactions. The securities exchanges, such as the Frankfurt Stock Exchange, the most highly organized markets around the world. The organized capital market is divided among others in the stock and bond markets, carbon markets and markets for promissory notes.

Non-organized markets

The free capital market and the interbank market have, however, with just a few guidelines, a very low degree of organization. There mainly find transactions occur without the involvement of banks, stock exchanges and insurance companies, most of which are uncertain and not manageable. The smallest organized in Germany market is referred to as Grey capital market in which, for example, the trading of shares in real estate funds is paramount.

Theoretical models

Both in economics and in business administration is attempting to mimic the above characteristics by models. In particular, the theoretical constructions of perfect and imperfect capital market are used.

It is characteristic of this simplified theoretical model of perfect capital market that traded goods are homogeneous on the market and there is a transparency of the market. The possibilities of borrowing and investment of capital are unlimited. The participants of the market can respond quickly to changes in volume and price, as it " lags time" no time delay, so called are. On the perfect capital market debt and equity can not be distinguished, so therefore, there is only one uniform and consistent market interest. these assumptions are gradually adjusted to the reality.

From an imperfect capital market, also called imperfect capital market, is when at least one of the previous assumptions is not met.

From a complete capital market is spoken when the whole state space can be represented by linear combinations of the traded cash flows ( securities).

Tasks and functions of the capital market

General Functions

• The market balance

The core function of the capital market, characterized as a market function, to provide a maximum matching of supply and demand for securities.

• The steering function

Another skill is the so -called allocation function, which is to direct the capital in the investment with the highest return and consequently in the most productive uses.

• The protection function

The protection function ensures that the capital participants information is provided for decision-making.

• The Individual Protection

This protective function for the investor on protection against other participants who wish to gain an advantage with Informationsvorschüben to the detriment of investors.

Transformation functions

Amount transformations

The amount of transformation involves the accumulation of savings in an economy formed and their distribution to investors in the desired maturity and amount of order.

Maturity transformation

Maturity transformation allows compensation of the periods between investors and savers. It is the period during which a loan is made by an investor to complete and the time that elapses until a saver presents its financial resources. These periods usually deviates from each other.

Lot size transformation

The lot sizes transformation made ​​possible by a merger of several investors, a match, the demand by the borrower amounts that could not provide a single investor.

Risk transformation

Due to the risk transformation savers will have the opportunity to hedge their credit risk or distribute. Uncertain cash flows can be converted into safe cash flows. Risks can thus, for example, are converted by fluctuating exchange rates.