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Why is it important for Finance Managers to have an understanding of Capital Markets?
A Capital Market is a place where investors and borrowers deal with each other. So, a finance manager must be aware of the markets. The value of securities and how they're traded in the markets should also be in the knowledge of the manager.
Capital markets are where the securities are traded and companies can invest in prospective companies that have chances to become successful in the future. However, although it might sound easy, it is a complex process altogether.
Note − Capital Markets can provide good returns on investment but no one can guess it 100% right.
It is complex because no one can guess the market results with 100% accuracy. One might choose lower valued stocks that may return more but put the investors in a very risky zone because these are not quite established securities in the market. On the other hand, if the investor wants to invest in comparatively less risky security, the prices of these stocks may be too high.
It is obvious that the most experienced managers would be good analyzers of the data too. In the current time of big data, the best analyzer is rewarded the most. So, apart from having a good understanding of capital markets, the manager must also have a keen eye on details of the other market conditions.
Note − It is risky to deal in capital markets because no one can predict the future of a particular stock with 100% accuracy.
The Knowledge of Capital Markets
Knowledge of Capital Markets comes in handy during the budgeting process too. While a company makes capitals budgets, the financial manager's knowledge of the manager can help the organization raise funds at the lowest possible rate. This not only saves future money but also helps the company earn more profits compared to other ones.
It is known to all finance managers that it is very risky to invest the whole amount of shareholder's investment fully in securities. Therefore, the financial manager must be aware of how much of it should be invested in the security markets to avoid risk yet get the best returns from the investment.
Finance managers also want to maximize the profits and the right securities can fetch them this goal. The idea about the best stocks in the market could be a game-changer for their organizations. However, caution must always be taken whatever the knowledge of the financial manager is. Dealing in the capital market is a very tedious and competitive process.
Note − The financial manager's understanding of capital markets is an invariable tool for the growth of the company.
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