Elements and Functions of the Capital Market

The project "Capital Market Support Program" is funded by the European Union under the DIGITAL RE4M Program and implemented by the EBRD's Capital & Financial Markets Development team to support the development of Georgia's capital market. Within the educational section of the "Capital Market Support Program," read a post on the topic "Elements and Functions of the Capital Market."

The capital market is a location for people, businesses, and governments to raise funds. Financing instruments are traded here: equity and loan financial instruments, ETFs, and more. Long-term investment products are frequently traded in capital markets. The money market is generally where you'll find short-term ones.

The capital market plays a crucial role in economic development. It mobilizes individual and corporate savings as well as surplus funds in various sorts of assets. The capital market connects capital suppliers and buyers. This makes it easier to move funds from non-productive to productive channels.

Significant suppliers of cash to the market include individual investors, commercial banks, financial institutions, insurance companies, business corporations, and pension funds. On the other hand, companies, entrepreneurs, governments, etc. are fund seekers. 

What are the benefits of investing in capital markets?

  • Savings: By investing in securities, investors can create savings. 
  • Investing in the stock market provides a source of income. Companies distribute profits in the form of dividends. Bonds pay interest income to bondholders. Often, the return on securities is higher than the interest on money or the banking sector. 
  • Capital Gains: When the value of securities increases, so does the value of their owners' investments. This is called a "capital gain." Investments accumulated over time at the expense of capital gains provide a good opportunity to increase wealth.