Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following is an example of a capital market?

1. Foreign exchange market

2. Stock Exchange

3. Commodity market

4. Retail market

The correct answer is: Stock Exchange

The Stock Exchange is considered a capital market because it facilitates the buying and selling of long-term financial instruments, particularly stocks and equities. Capital markets serve as platforms where businesses can raise funds by issuing shares or bonds to investors. The Stock Exchange plays a crucial role in this process by providing a structured environment for these transactions, enabling companies to obtain the capital they need for growth and expansion while also offering investors opportunities to invest in these businesses and potentially gain returns. In contrast, the foreign exchange market primarily deals with the trading of currencies and is considered a part of money markets rather than capital markets. The commodity market focuses on the trading of physical goods such as agricultural products, metals, and energy resources, which do not fall into the category of long-term financial instruments. The retail market pertains to the sale of goods and services to consumers, thereby operating in an entirely different domain from the capital markets. Each of these other options serves distinct purposes within the financial ecosystem but does not offer the same characteristics of long-term investment and funding found in capital markets.