Capital Market I SS3 Financial Accounting Lesson Note

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

1. Define capital market
2. State the functions of the capital market
3. List four methods of raising funds from the capital market

INSTRUCTIONAL TECHNIQUES: 

• Identification, 
• explanation, 
• questions and answers, 
• demonstration, 
• videos from source

INSTRUCTIONAL MATERIALS: 

• Videos, 
• loudspeaker, 
• textbook, 
• pictures

NOTE

CAPITAL MARKET

Capital market can be defined as long-term finances/ loans. A capital market can also be defined as a financial market in which long-term debt or equity-backed securities are bought and sold.

 TYPES OF CAPITAL MARKET

PRIMARY MARKET: the primary market is also known as the New Issue Market. The primary market deals with the issue of new securities/ shares.

SECONDARY MARKET: the secondary market is also known as the stock market or stock exchange. This is the market for trading already existing securities.

FUNCTIONS OF CAPITAL MARKET

• It makes trading of securities easier for investors and companies.
• It helps minimize transaction costs and information costs.
• It mobilizes the savings of parties from cash and other forms to the financial market.
• It offers insurance against market risk. 
• They achieve this by offering insurance against market or price threat, through imitative trading.

 METHODS OF RAISING FUNDS FROM THE CAPITAL MARKET

The following are methods by which a company can raise funds;

Offer through Prospectus: A prospectus is a document used by companies to invite. Members of the public/investors to invest in their company. It is a method used in theprimary market to raise funds. After a prospectus is issued, the public subscribes to shares, debentures, etc.

Offer for sale: by this method, the issue of shares is allotted to an issuing house which offers the securities to the public using a document called; an offer for sale. The issuing house(s) can be a finance house(s) or merchant bank.

Rights issue: a company can raise further funds by issuing shares to existing members(shareholders) on favorable terms.

Private Placement: Under the private placement, the company will sell its shares to financial institutes, banks, insurance companies, and some select individuals.

By Introduction: a company can apply to the stock exchange for the sale of its shares to the public. The offer for a new issue of shares will be done through the stock exchange.

EVALUATION:    

• What is the capital market?
• Mention two types of capital markets.
• State four functions of the capital market.
• List four methods of raising funds from the capital market.
• State four differences between debentures and shares.
• State four features of the capital market.

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively