Capital market is a market where users and also vendors engage in trade of financial securities like bonds, stocks, and so on. The buying/selling is embarked on by participants such as individuals and also establishments. Capital markets help channelize excess funds from savers to establishments which after that spend them right into productive use. Generally, this market trades mainly in long-term securities.
Capital market instruments are as follows:
1) Shares: A Share is a unit into which the funding of the firm is divided. A person having the shares of the business is called as a shareholder of that business. He is considered the part-owner of the company.
There are two types of shares:
a) Equity shares
b) Preference shares
2. Debentures: Debentures are long term borrowed funds of the company. They have fixed maturity duration along with a fixed interest rate. These are the certificates issued under the typical seal of the company.
3. Bonds: Bonds are the long-term borrowed funds of the government as well as companies. Like debentures, they have fixed maturity and set interest rate. Interest charged on bonds is called a coupon rate.
4. Derivatives: These are instruments that derive from various other securities, which are referred to as underlying assets. The price, riskiness, as well as the function of the derivative, depends on the underlying possessions given that whatever impacts the hidden asset should affect the derivative. Some examples of derivatives are:
d) Exchange-Traded Funds or commodities