The concept of Capital and Over-the-counter Markets

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The capital market sometimes referred to as long term market, is the part of the financial market which deals in long-term corporate securities as well as procedures for financing long-term investments. The most common corporate securities in this category are common stock, preferred stock, bonds and convertible securities.

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Through the institutions and intermediaries that make up the capital market, the society's surplus funds are made available to corporations in need of funds for long-term investments, corporate expansion, development of new product lines, and so on.

It has to be noted, however, that not all dealings in the capital market are consummated (channeled and concluded) through the organized exchange market. Also, in some cases, transactions in long-term funds are not covered by negotiable instruments. Apart from organized exchanges, recognized off board or over-the-counter markets exist, which enable some firms raise funds through private negotiation with providers of long-term funds.

A number of companies, especially small private companies, are not prepared to raise funds by issuing marketable securities listed and traded on the stock exchange, for fear of loosing control of their business. Thus, in examining the role of the capital market in any economy, consideration must be given to both organized exchanges and over-the-counter markets.

Over-the-counter Markets (OTC)

The over-the-counter market is the nationwide network of brokers and dealers, and handles both primary and secondary markets. Organized exchanges, on the other hand, are strictly resale markets. Traders in over-the-counter markets do not assemble in any central place to transact business. Rather, they are linked by network of telephones and electronic computer terminals throughout the country and the system is highly automated.

The brokers and dealers buy and sell securities for their clients and for themselves. The market includes any other market for the buying and selling of securities other than the organized exchanges.

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