Get AHSEC Class 12 Finance Chapter: 9 CAPITAL MARKET Important Questions Answers 2025.
In this Post we have provided UNIT III: CAPITAL MARKET HS 2nd Year Finance Chapter: 9 CAPITAL MARKET Important Notes with Marked/highlighted previous year questions asked in AHSEC Examination.
AHSEC Class 12 Finance Notes
Chapter: 9 CAPITAL MARKET
UNIT III: CAPITAL MARKET
CHAPTER-9 CAPITAL MARKET
1. What is a Capital Market? How do Capital Markets Work?
Ans: Capital market is an institutional arrangement by which savings are channelized into investment avenues.
Capital Market is generally understood as the market for long-term funds, which means more than a year. It is the financial pillar of industrialized economy and enables the borrowers to raise funds for their purpose.
Capital markets are like a system that helps people save money and then use that money to invest in things. It’s mainly for long-term money needs. If a business needs money for a big project, they can get it by selling pieces of paper called “securities,” like stocks or bonds. These papers show that someone has invested money in that business’s future. So, capital markets connect people who need money with people who want to invest their money. Who are the key players on demand and supply sides of capital market? Like every market it is also based on demand and supply forces.
(a) Demand Side of the Capital Market:
a. Companies and governments need money for long-term projects.
b. They get this money by selling special papers that promise to pay back over a long time.
c. Even regular people and farmers sometimes need long-term money for their work.
(b) Supply Side of the Capital Market:
a. People who have money and want to invest it are on this side.
b. They can give their money through banks, financial companies, or directly to the capital market.
c. It’s not just individuals; companies, mutual funds, financial institutions and others also provide money.
d. Capital markets connect those who need money with those who want to invest for the long term.
2. What are the characteristics of capital market?
Ans: Characteristics of Capital Markets:
i. Long-Term Financing: Capital markets are all about providing money for big things that take more than a year .
ii. Dealing in Long-Term Stuff: They mainly handle long-term financial papers like shares, debentures and bonds.
iii. Support for Big Business Needs: Capital markets help businesses get the money they need for important long-term projects.
iv. Key Players: The main players in the capital market include stock exchanges, development banks, regular banks and insurance companies.
V. Higher Risk: It’s important to know that there can be more risk involved in the capital market.
3. What are the functions/Advantages of capital market? [AHSEC 2024]
Ans: Functions of Capital Market: Capital markets have important roles/functions in the economy:
i. Link between Savers and Investors: The capital market links people who save money with those who want to invest it. It moves savings into productive projects and sectors that need funds.
ii. Encourages people to save: It offers various ways to save money, making saving more attractive. Banks and financial institutions provide facilities that encourage people to save more.
iii. Transforms Savings into Investments: The capital market allows people to lend money to governments and companies, turning savings into Investments. Different financial tools like shares and bonds make this possible.
iv. Promotes Economic Growth: By directing money to areas that need it most, the capital market promotes economic growth. It ensures that funds support business expansion and balanced economic development.
v. Promotes Stability: The capital market helps keep stock and security prices stable, reducing price fluctuations. It achieves this by providing capital at lower interest rates to borrowers.
vi. Benefits to Investors: The capital market is also good for Investors who want to put their money into long-term investments. It helps savers in the following ways:
(a) Bringing Buyers and Sellers Together: The capital market acts like a meeting place for people who want to sell and buy securities (like stocks and bonds).
(b) Keeping Investors Informed: The stock exchange, which is part of the capital market, shares information about security prices. This helps investors keep an eye on how their investments are doing and find the best ways to make money.
(c) Protecting Investors: The capital market looks out for investors, If there is any fraud or problems, it has a fund to compensate investors who lose money due to these issues. So, it’s like a safety net for investors.
4. What are the different types/categories of Capital Market?
Ans: The Capital Market can in categorised in two broad markets:
a. Primary Market (New Issue Market): This part of the capital market is where new securities and shares are sold for the first time.
b. Stock Exchange (Secondary Market): The other part is the stock exchange, where people trade existing securities like shares, debentures, stocks and bonds. It’s like a marketplace for used items.
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