Which markets are collectively referred to as capital markets?

The capital markets are defined as financial markets where long-term debt or equity-backed securities are bought and sold. This primarily includes the stock and bond markets, which facilitate the raising of capital for companies and governments through the issuance of shares and bonds.

In the stock market, businesses can raise equity capital by selling shares to investors, giving those investors ownership stakes in the company. In contrast, the bond market allows issuers to raise debt capital by selling bonds, where investors lend money to the issuer in exchange for periodic interest payments and the return of the bond's face value at maturity. Collectively, these markets are vital for providing the necessary funding for economic growth and development, making them a fundamental part of the financial system.

While real estate and commodity markets, foreign exchange markets, and derivatives markets play important roles in the overall financial ecosystem, they are not classified as capital markets. Real estate and commodities involve the trading of physical assets, foreign exchange is focused on currency trading, and derivatives deal with futures and options contracts based on the value of underlying assets. Therefore, it is the stock and bond markets that are correctly identified as capital markets.