A capital market, which is a part of the financial market, is constituted as soon as a network of financial institutions interact to mobilize and allocate long term funds into productive investment. The long term funds are exchanged for financial assets issued by borrowers or traded by holders of previously issued assets. Therefore, the capital market serves an important function of bringing together deficit and surplus units of an economy. The lack of this function renders the capital market useless as the opportunity for investment and production of goods and services for development is eliminated. This creates a gap where surplus units have idle funds and the deficit units are in search of funds for investment. The capital market thus provides services that are essential to a modern economy, mainly by contributing to capital formation through financial intermediation, financial advisory services and managerial skill development. It also promotes portfolio diversification which ensures savers can maximize returns on their assets and reduce risk to the barest minimum. Consequently, an efficient capital market optimizes the amount of savings that finances investment. (Odoko 2004)
Capital markets can indeed make or mar a nation. The surplus units are mostly made up of individuals and organizations. On the other hand, the deficit units consist of organizations and the government. The capital... [continues]
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