Introduction: The Market Context
1.1 CAPITAL AND THE CAPITAL MARKETS
Financial capital can be defined as accumulated wealth that is available to create further wealth. The capital markets are places where those who require additional funds seek out others who wish to invest their excess. They are also places where participants can manage and spread their risks. Originally, capital markets were physical spaces such as coffee houses and then purpose-built exchanges. In our day, capital markets participants may be located in different continents and conduct deals using advanced information technology.
Who are the users of capital? In a broad sense we all are, at least part of the time. We borrow money to buy a house or a car so that we can live our lives, do our jobs, and make our own small contribution to the growing wealth of nations. We save to pay school and university tuition fees, investing in the ‘human capital’ that will sustain the economic health of the country. More narrowly, though, financial capital is used by corporations, governments, state and municipal authorities, and international agencies to make investments in productive resources. When a company builds a new factory it is engaged in capital expenditure - using funds provided by shareholders or lenders or set aside from past profits to purchase assets used to generate future revenues. Governments use tax revenues to invest in infrastructure projects such as roads. Agencies such as the World Bank inject funds ...