Capital Market Development And The Behavior Essay Example Pdf

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The title itself justify the importance of the research for the finance degree, however, the previous research done in this filed in Nepal is not satisfactory. This is the reason that made researcher to do some research in this topic hoping the conclusion made would be beneficial for investors and fill the gap between the researches. Financial markets can also be defined as the centers or arrangements that provide facilities for buying and selling of financial claims and services.

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In this term, the role of financial system in economic development has been a much-discussed topic among economists. Financial markets perform four important economic functions. First, they enable individuals to choose more effectively between current and future consumption. Second, the interaction between buyers and sellers in a financial market determines the price of the assets, or alternatively, the return demanded by investors to invest in the company. Firms can raise further capital if the return on their investments exceeds the return demanded by investors. Third, financial markets provide liquidity to investors. That is, the owner of the financial asset can sell off the asset in the marketplace to realize cash whenever required. The degree of liquidity may vary from asset to asset and market to market. Fourth, financial markets can discipline under-performing managements. The prevailing stock price of a company reflects the opinion of all market participants regarding the outlook for the company under the current management. The financial market consists of two division- money market and capital market. The money market is basically entitled to supply finance on short-term basis to individuals, businesses, enterprises, government and their agencies. The capital market, on the other hand, provides finance on medium to long-term basis to corporate bodies, government and their agencies (Al-Faki, 2006). Money market may be defined as short-term financial assets market, which facilitates liquidity and marketability securities. Actually it is the market for short-term market instrument having less than one-year maturity period. The fluctuation of money market interest rates reflects the demand and supply of funds in competitive market. The development of an efficient money market requires the development of institutions, instruments, and operating procedures that facilitate widening and deepening of the market and allocation of short-term resources with minimum transaction costs and minimum of delays. Thus, the money markets are the markets for short -term, highly liquid debt securities. Though money market is not a related topic on this research so basically capital market will be discussed in details. Capital Market plays a crucial role in any modern economy as they allow investors’ fund to flow to the most promising opportunities, i.e., the funds are mobilized and channeled efficiently from savers to the users of funds Capital markets provide an effective way of procuring long-term funds by issuing shares and debentures or bonds for corporate enterprises and government and at the same time provide an investment opportunity for individuals and institutions (Adhikari 2004).

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