Instruments Traded In the Capital Market

Instruments Traded In the Capital Market

The capital market is one of the segments of financial markets. It deals with channeling of surplus funds in the form of medium-term or long-term funds to deficit unit. The transfer of funds takes place through different types of financial instruments.  If you are looking for short-term investment and wishes to trade online, then you could opt for trading in virtual currencies. Cryptocurrency market is gaining quite a bit of popularity nowadays as many people who entered the market has been able to book profit in a few days. Read through the Qprofit system review to learn more about it.  Below mentioned are the various financial instruments (medium of exchange) that are traded in the capital market.

Instruments of capital market

Debt instruments- The debt instruments are issued by the governments or organizations to finance the capital intensive projects.  They are obtained through either the primary market or secondary market. In this case, the relationship between two parties is of borrower and creditor. It does not imply ownership in the business. The contract is drawn for a specific period and the interest would be paid in regular intervals as mentioned in the agreement.  Principal sum invested will be repaid at the end of a contract period and the interest would be paid either in annually, semi-annually or quarterly.  Investment in this instrument is risk-free hence yields lower returns.

Equities- This is also an instrument that is issued by the organization which can be obtained from either in the primary market or secondary market. In this case, the buyer of the shares becomes the owner of the business until it gets sold to another party. The equity holder received dividends instead of interest and this dividend is a percentage of the profit paid to the shareholder. The risk factor of this instrument is very much high but it gives a higher return.  But whenever the company faces liquidation, the shareholder will be towards the bottom of preference as they are the owners of the company.

Derivatives- It is a financial instrument which derives its values from other related securities that are referred to as the underlying assets.   The riskiness, price and the function of the derivative depend on underlying assets and whatever affects underlying asset will affect derivative.  The derivative could be an index, an asset or also a situation. Derivatives are commonly traded in developed economies.  The examples of derivatives are:

  • Asset-backed securities
  • Mortgage-backed securities
  • Futures
  • Swaps
  • Options
  • Rights
  • Exchange traded commodities or funds

 

 

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