Conquering the Capital Markets - The Breakdown

| General

Conquering the Capital Markets - The Breakdown

The capital market is where companies and governments raise long-term funds. It is a place where investors buy and sell financial securities like stocks and bonds. These markets play a crucial role in the economy by providing a way for businesses to grow and for individuals to invest for their future. 

Capital markets are divided into two main types: the primary market and the secondary market. The primary market is where new securities are issued for the first time, allowing companies and governments to raise fresh capital. On the other hand, the secondary market is where existing securities are bought and sold among investors, without the involvement of the issuing company or government. 

Investors purchase these securities, providing capital to the companies or governments. In return, investors receive ownership in the case of stocks or a promise of repayment with interest in the case of bonds. The prices of these securities fluctuate based on supply and demand, economic conditions, and company performance. Overall, capital markets facilitate the flow of funds between investors and entities in need of capital, driving economic growth and development.

When companies issue stocks or bonds in the capital market, they can raise money to expand their business, develop new products, or make acquisitions. It's a way for companies to access the capital they need to grow and thrive in the market. Apple utilised the capital markets to fund the research and development of new products and to expand its retail presence. 

The capital market offers opportunities for investors to grow their wealth, but there are some downsides to consider. One significant risk that investors face in the capital market is interest rate risk, which can impact bond investments. This refers to any changes in the Bank of England base rate and SONIA rate. Potential changes in interest rates to affect the value of bonds. When interest rates rise, the value of existing bonds with lower interest rates decreases because newer bonds offer higher rates, making the existing bonds less attractive to investors as they would be paid out less interest on their security. 

This can lead to losses for bondholders if they need to sell their bonds before maturity. So, it's essential for investors to understand and manage interest rate risk when investing in bonds or other fixed-income securities.



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