q.

Capital markets are a broad category of markets facilitating the buying and selling of financial
instruments. In particular, there are two categories of financial instruments that capital in which markets
are involved. These are equity securities, which are often known as stocks, and debt securities, which are
often known as bonds. Capital markets involve the issuing of stocks and bonds for medium-term
and long-term durations, generally terms of one year or more.

Capital markets are overseen by the Securities and Exchange Commission in the United States or other
financial regulators elsewhere. Though capital markets are generally concentrated in financial centers
around the world, most of the trades occurring within capital markets take place through computerized
electronic trading systems. Some of these are accessible by the public and others are more tightly
regulated.

Other than the distinction between equity and debt, capital markets are also generally divided into two
categories of markets, the first of which being primary markets. In primary markets, stocks and bonds are
issued directly from companies to investors, businesses and other institutions, often through underwriting.
Primary markets allow companies to raise capital without or before holding an initial public offering so as
to make as much direct profit as possible. After this point in a companys development, it may choose to
hold an initial public offering so as to generate more liquid capital. In such an event, the company will
generally sell its shares to a few investment banks or other firms.

Differentiation From 'Money Markets'

People often confuse or conflate capital markets with money markets, though the two are distinct and
differ in a few important respects. Capital markets are distinct from money markets in that they are
exclusively used for medium-term and long-term investments of a year or more. Money markets, on the
other hand, are limited to the trade of financial instruments with maturities not exceeding one year. Money
markets also use different financial instruments than capital markets do. Whereas capital markets use
equity and debt securities, money markets use deposits, collateral loans, acceptances and bills of
exchange.

Because of the significant differences between these two kinds of markets, they are often used in different
ways. Due to the longer durations of their investments, capital markets are often used to buy assets that
the buying firm or investor hopes will appreciate in value over time so as to generate capital gains, and
are used to sell those assets once the firm or investor thinks the time is right. Firms will often use them in
order to raise long-term capital.

Money markets, on the other hand, are often used to general smaller amounts of capital or are simply
used by firms as a temporary repository for funds. Through regularly engaging with money markets,
companies and governments are able to maintain their desired level of liquidity on a regular basis.
Moreover, because of their short-term nature, money markets are often considered to be safer
investments than those made on the equities market. Due to the fact that longer terms are generally
associated with investing in capital markets, there is more time during which the security in question may
see improved or worsened performance. As such, equity and debt securities are generally considered to
be riskier investments than those made on the money market.

Q.3

Taking into account the role in the market economy, the capital market
occupies an important place, through their specific mechanisms, succeeding to
give its contribution to the economic development of the society. In
consequence, the public authorities must notice the importance of the capital
market in the national economy and, on the other hand, to make the efforts for
insuring the necessary framework for the normal functioning of its specific
mechanisms. The valences of the capital could be even more interesting in the
case of emerging markets being well-known its contribution in reorienting
financial resources to efficient activities, contributing to the economic reform,
but also being interesting in the privatization process.

Again the capital market was instrumental to the initial twenty five Banks that
were able to meet the minimum capital requirement of N25 billion during the
banking sector consolidation in 2005. The stock market has helped
government and corporate entities to raise long term capital for financing new
projects, and expanding and modernizing industrial/commercial concerns
(Nwankwo, 1991).

Introduction

Economic growth in a modern economy hinges on an efficient and effective

financial sector that pools domestic savings and mobilizes capital for
productive projects. Absence of effective capital market could leave most
productive projects which carry developmental agenda unexploited. Capital
market connects the monetary sector with the real sector and therefore
facilitates growth in the real sector and economic development.

The fundamental channels through which capital market is connected to the

economy, economic growth and development can be outlined as follows:

The contact between agents with deficit of money and the ones with monetary
surplus can take place in a direct way (direct financing), but also by the means
of any financial intermediation form (indirect financing), situation in which
specific operators realize 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.

Even if, traditionally, the companies appeared only as agents with deficit of
money, in the last two or three decades it could be noticed a change in the
financial behavior of the modern firms: these are not considering anymore the
financial market (both the capital and the monetary market) only as sources
for rising funds (as issuers of financial assets), but appears more often as
buyers of financial assets. The capital market fulfills the transfer function of
current purchasing power, in monetary form, from companies which have a
surplus of funds to those which have a deficit, in exchange for reimbursing a
greater purchasing power in the future; in this way the capital market makes
possible to separate the saving act from the investment one. Capital market
has played major roles during the privatization of public owned enterprises,
recent recapitalization of the banking sector and avenue of long term funds to
various government agencies and companies in Nigeria.

Capital market increases the proportion of long-term savings (pensions,

funeral covers, etc.) that is channeled to long-term investment. Capital market
enables 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,
capital market enables corporations to raise capital/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 stresses 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 investment ratios that are essential for rapid
industrialization.

In addition, the capital market mechanism allows not only an efficient

allocation of the financial resources available at a certain moment in an
economy from the markets point of view but also permits to allot funds
according the return and the risk from the investors point of view offering
a large variety of financial instruments with different profitableness-risk
characteristics, suitable for saving or risk covering. Nowadays, the protection
against financial risks becomes a necessity, imposed by the transformations in
the global economy, by the accented instability and the financial crisis that
affects without discrimination both developed and emerging stock markets.

Covering the risk, that could be realized by the help of different operations,
market orders or derivatives, defines the function of insurance against risks,
specific function of the capital markets. The capital market allows risk
dispersion between investors (of the diversifiable risk), exactly in the same
measure in which each of them is willing to assume it, too.

From the issuers point of view, the money which is necessary for the
development or the unfolding of their activity can be mobilized by the help of
the capital market at accessible costs, theoretically speaking smaller than
those possibly obtained by the help of the banks or by other financial
intermediaries.

Capital market also provides equity capital and infrastructure development

capital that has strong socio-economic benefits through development of roads,
water and sewer systems, housing, energy, telecommunications, public
transport, etc. These projects are ideal for financing through capital market via
long dated bonds and asset backed securities. Infrastructure development is a
necessary condition for long-term sustainable growth and development. In
addition, capital market increases the efficiency of capital allocation by
ensuring that only projects which are deemed profitable and hence successful
attract funds. This will, in turn, improve competitiveness of domestic
industries and enhance ability of domestic industries to compete globally,
given the current momentum towards global integration. The result will be an
increase in domestic productivity which may spill over into an increase in
exports and, therefore, economic growth and development.

Moreover, capital market promotes public-private sector partnerships to

encourage participation of private sector in productive investments. The need
to shift economic development from public to private sector to enhance
economic productivity has become inevitable as resources continue to
diminish. It assists the public sector to close resource gap, and complement its
effort in financing essential socio-economic development, through raising
long-term project based capital. It also attracts foreign portfolio investors who
are critical in supplementing the domestic savings levels. It facilitates inflows
of foreign financial resources into the domestic economy.

Recent empirical research linking capital market development and economic

growth suggests that capital market enhances economic growth and
development. Countries with well-developed capital markets experience
higher economic growth than countries without. Evidence indicates that, while
most capital markets in African countries are relatively underdeveloped, those
countries which introduced reforms that are geared towards development of
capital markets have been able to grow at relatively higher and sustainable
rates. A study in 2011 showed that South Africa, the country whose capital
market is the largest and most developed in Africa, in terms of market
capitalization and trading volume, has been growing significantly since 2000.
Its average per capita real GDP over the last 8 years has been at 3.2 %.
Countries like Egypt, Ghana, Tanzania, Botswana and Mauritius, whose
capital markets have been developing recently, were able to realize average per
capita growth rates of more than 2.8% for the past 8 years. However, some
economies which did not have formal or effective capital market like Lesotho,
Seychelles and Ethiopia could not manage to realize average per capita growth
rates above 2.7 % over the past 8 years. Even those countries with small and
less developed capital market like Swaziland and Uganda did not manage to
realize average per capita growth rates above 2.7 % during the past 8 years
(CBL Economic Review, August 2009, No. 109).

The role of capital markets is vital for inclusive growth in terms of wealth
distribution and making capital safer for investors. Capital markets can create
greater financial inclusion by introducing new products and services tailored
to suit investors preference for risk and return as well as borrowers project
needs and risk appetite. Innovation, credit counseling, financial education and
proper segment identification constitute the possible strategies to achieve this.

A well-developed capital market creates a sustainable low-cost distribution

mechanism for multiple financial products and services across the country.
This writing has sought to demonstrate an important role played by capital
market in economic growth and development. Capital market enhances
efficient financial intermediation. It increases mobilization of savings and
therefore improves efficiency and volume of investments, economic growth
and development.

Q4

A new issue is a reference to a security that has been registered and issued and is being sold on a
market to the public for the first time. The term does not necessarily refer to newly issued stocks,
although initial public offerings (IPOs) are the most commonly known new issues. Securities that can be
newly issued include both debt and equity.