Capital Markets

Real assets determine the wealth of an economy. Financial assets are claims to the income generated by real assets or claims on income from the government. Therefore, investors returns on securities ultimately come from the income produced by the real assets that were financed by the issuance of securities traded in CM. Financial assets and the markets in which they trade play several crucial roles in developed economies, because they permit to maximize profitability of the economy's real assets.

Markets.

CMs provide a wide range of products and services that are related to financial investments. CMs include the stock market, commodities exchanges, the bond market, and just about any physical or virtual service or intermediary where debt and equity securities can be bought or sold. Their primary purpose is to raise funds and channel investor's money to areas where there is a deficit or need for investment. They play a vital role as intermediaries. Types of CM:

1. Primary market, where new stocks and bonds are issued to investors. Governments, companies, or public sector organizations can obtain funding through the sale of a new stock or bonds. These are normally issued through securities dealers and banks, which underwrite the offered stocks or bonds. The issuers earn a commission, which is built into the price of the security offering. When firms need to raise capital they develop new issues of stocks, bonds, or other securities, which usually are marketed to the public by IB in the primary market. Two types of primary market issues:

A. Public offerings (IPO's are initial public offerings). It refers to an issue sold to the general investing public that can then be traded on the secondary market. Public offerings of both stocks and bonds typically are marketed by investment bankers who in this role are called underwriters. More than one investment banker usually markets the securities.

B. Private placement. It refers to an issue that a firm (using an investment banker) sells directly to a small group of institutional or wealthy investors. Private placements can be far cheaper than public offerings. On the other hand, because private placements are not made available to the general public, they generally will be less suited for very large offerings. Moreover, private placements do not trade in secondary markets like stock exchanges, which usually reduces their liquidity and the prices that investors will pay for the issue.

2. Secondary market, where existing stocks and bonds are traded. Stock and shares in publicly traded companies are bought and sold through one of the major stock exchanges, which serve as managed auctions for stock. A stock exchange provides facilities to trade stocks and other securities, and for the issue and redemption of securities, trading in other financial instruments, and the payment of income and dividends. Trading in secondary markets