What activity is primarily conducted in a capital market?

What activity is primarily conducted in a capital market?

• A. Short-term lending
• B. Buying government bonds
• C. Buying and selling long-term securities
• D. Currency trading

Answer: (C)

In a capital market, the primary activity revolves around the buying and selling of long-term securities. Capital markets serve as platforms for companies and governments to raise funds for long-term investments and operational needs, primarily through the issuance of stocks and bonds. When investors participate in the capital market, they typically engage in transactions involving these long-term financial instruments, which have maturities greater than one year. This process allows for the efficient allocation of capital, as investors provide the necessary funding in exchange for potential returns over a long period. The focus on long-duration financial instruments distinguishes capital markets from other types of markets, such as money markets, which deal more with short-term debt instruments. Other activities, like short-term lending or government bond purchasing, while they may occur within the broader financial system, do not capture the essence of what defines capital markets. Currency trading pertains to the foreign exchange market and is unrelated to the long-term funding and investment focus of capital markets.

In a capital market, the primary activity revolves around the buying and selling of long-term securities. Capital markets serve as platforms for companies and governments to raise funds for long-term investments and operational needs, primarily through the issuance of stocks and bonds. When investors participate in the capital market, they typically engage in transactions involving these long-term financial instruments, which have maturities greater than one year.

This process allows for the efficient allocation of capital, as investors provide the necessary funding in exchange for potential returns over a long period. The focus on long-duration financial instruments distinguishes capital markets from other types of markets, such as money markets, which deal more with short-term debt instruments.

Other activities, like short-term lending or government bond purchasing, while they may occur within the broader financial system, do not capture the essence of what defines capital markets. Currency trading pertains to the foreign exchange market and is unrelated to the long-term funding and investment focus of capital markets.