Functions

Mobilization of Savings:

The capital market channels savings from individuals, households, and institutions into productive investments.   It provides a platform where these savings can be invested in various financial instruments like stocks and bonds, facilitating capital formation.   2. Facilitating Capital Formation:

By mobilizing savings, the capital market enables businesses and governments to raise the long-term capital they need for expansion, infrastructure development, and other projects.   This capital formation is essential for economic growth.   3. Price Discovery:

The interaction of buyers and sellers in the secondary market determines the prices of securities.   This price discovery mechanism provides valuable information about the perceived value of companies and other assets.   This allows for efficient allocation of capital.   4. Liquidity Provision:

The secondary market provides liquidity to investors, allowing them to buy and sell securities easily.   This liquidity makes investments more attractive, encouraging participation in the capital market.   5. Risk Sharing:

The capital market allows investors to diversify their portfolios, spreading risk across various assets.   This diversification reduces the impact of any single investment's poor performance on an investor's overall portfolio.   It also allows companies to spread the risk of their buisness amoung many shareholders. 6. Efficient Allocation of Resources:

The capital market helps to allocate resources efficiently by directing funds to the most promising investment opportunities.   Companies with strong growth potential can raise capital more easily, while those with poor prospects may find it difficult to attract investment. 7. Promoting Economic Growth:

By facilitating capital formation and efficient resource allocation, the capital market contributes to economic growth.   It enables businesses to invest in new technologies, expand their operations, and create jobs.   Governments also use the capital markets to fund large scale infrastructure projects that further stimulate the economy. 8. Corporate Governance:

The capital market, particularly the equity market, plays a role in corporate governance.   Shareholders have the right to vote on important company decisions, and the threat of a takeover can encourage managers to act in the best interests of shareholders.   In essence, the capital market is a critical engine of economic activity, connecting those who have capital with those who need it, and facilitating the efficient allocation of resources.