A capital market is a system that allocates financial resources in the form of debt and equity according to their most efficient uses. Its main purpose is to provide a mechanism through which those wishing to borrow or invest money can do so efficiently. Capital markets help individuals and institutions borrow the money that other individuals and institutions want to lend. Commercial banks lend borrowers their investors' deposits at a specific rate of interest. They provide loans for new investment projects and may help to finance a firm's import or export activities.
Investment banks help clients to invest excess capital and to borrow needed capital.
They act as agents, introducing clients to organizations that provide either investment or borrowing opportunities. Company debt normally takes the form of bonds-debt instruments specifying the timing of principal and interest payments. Equity is part ownership of a company in which the equity holder participates with other part owners in the company's financial gains and losses. Equity normally takes the form of stock-shares of ownership in a company's assets that give shareholders a claim on the company's future cash flows. The international capital market is a network of individuals, companies, financial institutions, and governments that invest and borrow across national boundaries.