Capital market

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Dhara gulati

Dhara gulati (Querist)
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29 December 2015 what is the role of securities market in economic growth???

Arpit Shah

Arpit Shah (Expert)
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30 December 2015 Role or Importance of Security Market

Mobilizes inactive savings

The security market mobilizes saving for economic development. The instruments which are used in security market have liquidity and they are easily available. Hence, people secure their saved property by purchasing financial investments. The interest rate is also attractive in those instruments. So people like to mobilize more savings.

Economic growth

For the economic growth or development of a country, saving and investment are prerequisites. Higher the saving and investment, higher the rate of return or rate of economic growth. Hence, financial market helps the efficient utilization of resources and economic growth.
Promotion of trade

The security market helps in promotion of trade. It increases internal as well as external trade by providing the means of exchange.
Channel savings to investments

Through security market a large amount of capital can be collected by selling the instruments like stock, bond etc. and the income earned from them can be used to pay debt. The investment on these securities provides interest and dividend. In the absence of security market, even those having adequate capital cannot use capital in productive sectors.
Promotes long term investments

The long term loan needed to the individuals, households, government and business can be obtained from the security market. The fund raised by this market can be invested in agriculture, industry, services etc.
Increases quality of investments

The security market mobilizes unproductive funds into productive sectors. The investors always try to invest in the areas yielding high rate of return. The security market assists in selecting appropriate opportunity to mobilize fund effectively.
Provides liquidity

Since there is liquidity and less risk of loss in financial instruments, the savers are stimulated to invest in stocks, bonds etc. The investors can receive cash promptly selling those securities into secondary market.
Attracts foreign capital

The capital or security market presents the clear picture of the economy. On account of this, foreign capital and foreign assistance are attracted towards a country.
Enhances economic growth

The rate of saving and investment in the country increases from the activities of security market. This increases productivity and brings a wave of progress in industry, agriculture and trade sectors. Hence, it leads to an increase in the rate of economic growths.

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