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The Integrity Of Capital Markets Essay

1328 words - 5 pages

Introduction
Capital market is constituted of both primary and secondary markets all of which provide long-term investment opportunities. They are markets for long term funds with maturity period of more than one year. Examples of Financial instruments which are used in capital markets are debentures, terms, loans, bonds, warrants, preference shares and ordinary shares among others. These markets constitute of bond market and stock market in which debts and equity securities are traded respectively. Subsequently, capital market serves as a way of allocating the available capital to the most efficient users. Being an investment arena, capital markets usually are in constant control of immense amount of money which is usually contributed by investors. On the side of investors, they offer their capital contributions to these markets with an overall aim of obtaining the maximum benefits or rewards for their financial contribution within the minimum period possible (Brown, 2005).

In the last five decades, capital markets have attracted a significant number of interested investors. This has been associated with recommendable rewards or compensations which have been exhibited by already in investors. Nevertheless, the existing loopholes in the governing and supervisory rules have exposed investors to a number of risks associated with these investments. According to research surveys which have been carried out in the United States of America, approximately forty percent of American citizens have been shying away from investing in capital market due to previous cases of inappropriate exploitation of investors (Tichy, & McGill, 2003).

Capital market should adhere to equal and even distribution of market information to all market players. Through this, investors can amply make informed decisions on their use of capital. This is through adoption of appropriate communication channel capable of reaching the maximum attainable number of interested parties. For example through use of print media and radio, a large number can be accessed.

Unethical business practices have been dominating the capital market environment thus leading to subsequent frustration of investors. For instance, delivery and channeling of sensitive market oriented information on biased bases has led to unexpected fluctuation of various market share prices in which shareholders expect dividend from. For example, cases have been reported where top management teams in a collapsing organization leak some such sensitive information to a small group of shareholder. As a consequence, the informed shareholders clear their shares through sale from the involved organization through adoption of a luring technique. This leaves the future investors at a state of dilemma accompanied with frustration and loss bearing the opportunities foregone (O'Brien, 2007).

Capital markets should uphold their integrity by acting independently through formulation of strategies an making of decision...

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