Mar 24, 2019

Ensuring economic growth and development is a primary objective of all countries. According to the World Bank, an estimated USD 4.0 trillion in annual investment is required for developing countries to achieve the Sustainable Development Goals (SDGs) by 2030. In light of the investment requirement, there is a greater need to develop and strengthen capital markets in order to mobilize commercial financing. The role that capital markets have in financing infrastructure development, large enterprises, and Small and Medium Enterprises (SMEs), and the links with economic growth, are increasingly being highlighted.

Is Money A Capital Resource

Economists traditionally have looked to factors such as capital, labor and technology as the major factors affecting economic growth. The recent financial crisis has shown that there are substantial economic effects when there is lack of confidence in the financial systems. Therefore, the functioning of financial systems has received special attention in academic literature in recent years. A well-functioning financial system permits an economy to fully exploit its growth potential, as it ensures that the best investment opportunities receive the necessary funding, while the inferior opportunities are denied capital; in this regard, we endeavor to investigate the role that capital markets play in economic development. This focus addresses the topic as follows:

Capital and interest, in economics, a stock of resources that may be employed in the production of goods and services and the price paid for the use of credit or money, respectively. Capital in economics is a word of many meanings. They all imply that capital is a “stock” by contrast with income. Private equity and venture capital may require investors to make capital calls, McLean says. An investor may commit $200,000 to a fund, but the managers take money in $50,000 tranches over two years. Show all show all steps. Since money does not directly helps in the production of goods and services, but in fact, it helps in the purchase of those resources which produces them, so it is not included by the economists in the economic resources. Comment ( 0) Chapter 1, Problem 8DQ is solved. View this answer. View a sample solution. Money doesn't actually produce anything, and it doesn't satisfy, wants indirectly. It satisfies them directly. And so it's not used. Lee used to acquire capital goods, so it is not considered an economic resource. It all, and it is considered specifically distinct from capital. Resource is the next question asked about entrepreneur.

Introduction to Capital Markets, where we highlight the capital market framework, key players and products,
How Capital Markets Facilitate Economic Development, where we look at the fundamental channels through which capital markets are connected to economic growth and development,
Challenges of Developing Capital Markets, where we highlight the effects on the economy when capital markets don’t work as they are supposed to,
Case Study - Capital Markets in South Africa, & Learnings for Kenya, and,
Steps Kenya Should Take to Expand its Capital Markets as Complementary to Bank Funding

Section I: Introduction to Capital Markets

Capital markets are a general category of markets that facilitate the buying and selling of securities with medium-term and long-term maturity, of one year or more. Capital markets channel savings and investment between suppliers of capital and users of capital through intermediaries. Examples of these key players in the capital market’s process are:

Suppliers of Capital: Also known as surplus units, suppliers receive more money than they spend or have immediate use for. They can be termed as investors. They provide their net savings to the financial markets for a return on the capital provided. Examples include retail investors and institutional investors,
Financial Intermediaries: A financial intermediary is an institution or individual that serves as a middleman among diverse parties in order to facilitate financial transactions. Common types include commercial banks, investment banks, stockbrokers, fund managers, and stock exchanges,
Users of Capital: Also known as deficit units, users of capital spend more money than they receive or need funds for investments or development. They are also termed as borrowers. They access funds from the capital markets. Examples include businesses, the government and individuals.

Real capital is a resource but money is not a community

Products in the capital markets are also referred to as capital market securities. These are debt securities, with a maturity of more than one year, and equity securities. Funds received from these products are mostly used to purchase capital assets, such as buildings, equipment, or machinery. The key capital markets securities are as follows:

Bonds: These are medium to long-term debt securities issued by firms and governments to raise large amounts of funds. Bonds are differentiated by the issuer and can be classified as Treasury bonds, municipal bonds, or corporate bonds,
Equity Securities: An equity security represents ownership interest held by shareholders in an entity realized in the form of shares of capital stock, which includes shares of both common and preferred stock. They are classified as capital market securities because they have no maturity and therefore serve as a long-term source of funds.

Section II: How Capital Markets Facilitate Economic Development

The capital markets are a network of specialized financial institutions, series of mechanism, processes and infrastructure that in various ways facilitate the bringing together of suppliers and users of medium to long-term capital. Capital markets connect the monetary sector with the real sector, which is the sector of the economy concerned with the production of goods and services. Considering this role in the economy, the capital markets play an important role in economic development as they facilitate growth in the real sector by giving producers of goods and services, and entities tasked with infrastructure development. access to long-term financing.

The fundamental channels through which capital markets are connected to the economy, economic growth and development can be outlined as follows:

Creating a Bridge Between Suppliers of Capital and Users: The contact between agents with a monetary deficit and the ones with monetary surplus can take place directly through direct financing, but also through a financial intermediary in form of indirect financing, which is a situation whereby specific operators facilitate the connection between the real economy and the financial market. In this case, the financial intermediaries could be banks, investment funds, pension funds, insurance companies, or other non-bank financial institutions,
Promoting Saving and Investments: The capital markets increase the proportion of long-term savings (pensions, life covers, etc.) that is channeled to long-term investment. Capital markets enable the contractual savings industry (pension and provident funds, insurance companies, medical aid schemes, collective investment schemes, etc.) to mobilize long-term savings from small individual household and channel them into long-term investments. It fulfills the transfer function of current purchasing power, in monetary form, from surplus sectors to deficit sectors, in exchange for reimbursing a greater purchasing power in future. In this way, the capital markets enable corporations to raise funds to finance their investment in real assets. The implication will be an increase in productivity within the economy leading to more employment, increase in aggregate consumption and hence growth and development. It also helps in diffusing stress on the banking system by matching long-term investments with long-term capital. It encourages broader ownership of productive assets by small savers. It enables them to benefit from economic growth and wealth distribution, and provides avenues for investment opportunities that encourage a thrift culture critical in increasing domestic savings and investments that translate to economic growth,
Facilitating Efficient Allocation of Scarce Financial Resources: The capital markets facilitate the efficient

Real Capital Is A Resource But Money Is Not