3 - Capital markets and the securities industry

Abstract

This chapter presents a discussion on capital markets and the securities industry. Bonds and equities are securities traded in the capital market. The same is true for securitized loans. The capital market is pivot point of capitalization. Furthermore, high interest rates mean higher returns on bonds for investors and thus fixed interest instruments eventually attract money from the stock market. Higher interest rates also mean more expensive borrowing for business, which depresses business earnings and profits and lead investors to expect less return from equities. With the growth of the modern capital market nearly 14 decades ago, came investment-banking houses that made it relatively easy for industrialists and for magnets of the transport industry to tap a wide pool of the American and European capital. To a substantial extent, capital market financing has been a self-feeding cycle. The principle behind the growth of capital markets states that the scale, scope, and structure depend on what an organization is trying to do and on how well it can do it. Organizations are the means to ends, not ends in themselves. The chapter concludes with a discussion on securities and their legal protection.