If you're a student who's interested in working in a capital markets job and you're in the earliest stages of wondering precisely what capital markets are and why you might want to work in them, a new report from BNP Paribas and ThinkTank New Financial could help clarify matters.
As the chart below reflects, capital markets are all about raising money. Both large and small companies raise money in different ways depending upon their size. The bigger the company, the more likely it is to turn to capital markets to raise money by either selling corporate bonds (in the debt capital markets/DCM) or by having an initial public offering (IPO) and selling equity (in equity capital markets/ECM). By comparison, smaller companies are more likely to raise funds through business angels or through crowd funding.
Why companies use capital markets, and when
Companies that issue bonds in debt capital markets can either issue investment grade bonds if they have low credit risk, or issue high yield bonds if they are more risky and less likely to pay back the money when the bond matures.
However, companies don't have to use public capital markets to sell bonds and equity. They can also raise money through leveraged loans (if they have a poor credit history), private equity, private placements, venture capital, or straight-up bank loans and trade finance.
Before you apply for a capital markets role, it's worth knowing what the funding options are. - And why you want to work in ECM and DCM rather than other areas of the market.
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