The Capital Markets

CHAPTER 2The Role of Global Capital Markets

Christian Edelmann and Shasheen Jayaweera

INTRODUCTION

This chapter provides an introduction to the participants, products, and functioning of global capital markets (Figure 2.1). We also discuss the important role capital markets play in supporting economic growth and development. We start with a detailed discussion of key participants and how capital markets support their economic activities. We then introduce the main product groups offered, describing their key features and uses. Next, the various types of markets are explained, covering how they facilitate the funding and investing needs of participants. Finally, we conclude with a discussion of why capital markets are critical for economic development.

Figure 2.1: Capital markets environment

Source: Oliver Wyman

THE BASIC PRODUCTS OFFERED IN CAPITAL MARKETS

In a narrow definition, capital markets offer two types of funding products to issuers, equities and debt (also called fixed income) through both primary (initial issuance of securities) and secondary (ongoing trading of securities) markets. In a broader definition, capital markets include the trading of physical assets (e.g., commodities) in addition to currencies and derivatives.

Equities

Equities, commonly known as shares and stocks, represent an ownership interest in a corporation, hence the term share as each ...