How Do The Capital Markets Work?
The capital market is a trading platform for cash and securities.
Companies require funding in order to function properly. One of the most efficient methods of obtaining funding is through a public offering on the stock markets. There are two approaches to this:
- Equity securities - sale of shares
- Borrowing securities: selling bonds
When a private company first enters the capital market, the shares are sold through an IPO, or initial public offering. A stock is a share security, which means that by purchasing it, the investor becomes a shareholder of the issuing company.
In order to attract cash, the company can also issue bonds. A bond is a loan taken by an issuing company from investors. Unlike shareholders, bondholders are not the owners of the company. They receive interest on the amount borrowed and repay the principal amount borrowed at the end of the bond period.
The capital market links investors and lenders through public securities. Access to capital helps in the expansion of successful firms. This, in turn, helps to resource redistribution efficiency and the development of a healthy economy.
As a result, the Capital Market Support Project, funded by the European Union (EU) under the DIGITAL RE4M Program and implemented by the EBRD’s Capital & Financial Markets Development team, is underway to support the development of the capital market in Georgia.