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Capital Markets

Capital Markets is a generic term and is used interchangeably with financial markets. There are many different types of Capital Markets.

To put it simply, think of Companies that are listed on Stock Markets where they sell shares of the company to the public, think of debt bonds that are sold to investors, these are both prime examples of Capital Markets.

Within these markets, buyers and sellers trade financial products such as shares, bonds and securities.

Each market is often affected by external factors and usually go through constant fluxes due to socio-economic changes such as government policies as well as environmental factors.

Financial markets are great sources of raising capital for a company’s new project.

The Stock Exchange

The most well-known is the stock exchange. London houses one of the largest stock exchanges in the world and is known as the London Stock Exchange. The stock exchange deals primarily with shares of publicly owned companies. This means that companies and individuals can essentially “own” a portion of various well-established companies within various sectors such as HSBC, Tesco and even GlaxoSmithKline.

Only the largest companies trade on the London Stock Exchange. Most smaller growing companies trade on the Alternative Investment Market (AIM). We can help you prepare your company for listing on the AIM.

There are many instruments used to predict how well companies are performing and these give indications as to whether the company will be worth investing in.

Bond Market

Bonds are a type of financial product that is essentially a loan made by an investor to a borrower. These are used for large scale investments. Unlike purchasing Stocks, a bond is usually issued to the borrowing entity, for a fixed period of time. Each bond will specify the amount due to be repaid by the borrowing entity along with other considerations such as interest payments.

This method of financing provides various advantages for the company compared to a traditional loan. The most important being that bonds terms are set by the borrowing entity as opposed to the lending entity.

Commodities Market

This type of market is the oldest compared to bonds and stocks and is the most volatile. The most common commodities that are sold are gold and oil.

The prices for Commodities can be heavily influenced by geo-political factors and local economic factors. The more finite the commodity, the higher the amounts that are paid.

Purchasing a commodity requires a higher level of expertise to ascertain the future saleability value of these commodities. Whenever the stock market is affected by economic factors such as Recession, the commodities market usually flourishes as buyers intend to buy tangible goods that can maintain its value.

Derivatives Market

The above three types of financial markets are based on the current present value. Whereas the derivatives market is based on the future value of the financial product that is being traded and is heavily dependent on the value of the underlying stock. To invest in derivatives, one must understand the product that is being sold and all of the surrounding factors which affect the future saleability value.

Why do we have these financial markets?

The prime reason why people invest is to increase the amount of money they own. This, in turn, boosts the economy as more people and companies have more monies to invest and purchase.

Financial markets are regulated, and therefore, investors and debtors will receive fair treatment. The regulations allow for individuals and organisations to increase their liquid capital while protecting the smaller companies. Regulations provide access to financial markets for smaller companies.

How We Can Help

From debt and equity issues through to derivatives and structured finance, our team advise on a full range of UK, U.S. and domestic laws through our global network of offices.

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