Capital Market Instruments

The capital market is the market where certain investments are traded. Things such as mortgages, equities and bonds are all traded in the capital market. The role of this market is to move investments from those who have more than they need to those who need them. The capital market offers overnight funds as well as long term funds. All financial instruments that have longer maturity periods fall under the capital market. There are many different capital market instruments including those for equity, credit markets, foreign exchange, derivative and several others. Capital market instruments are those that are used to generate funding for companies and governments who need capital. These instruments are used by various investors who wish to earn a profit from the market. There are a number of different capital market instruments that are used for trade including bonds, stocks, treasury bills, debentures and fixed deposits as well as many others.

The capital market is also referred to as the securities market due to the long term funds that are raised through trading equity and debt securities. The primary capital market deals with new issues while the secondary capital market deals with the trading of existing issues. Among the various different types of capital market instruments, stocks and bonds are the two most common and the most basic. Bonds are traded in a bond market which is also referred to as a credit, fixed income or debt market while stocks can be used as capital trades in auction, physical and virtual markets.

All capital market instruments are designed to offer returns on initial investments although the risk factors will vary widely for each. Choosing a specific instrument for trade will depend on your specific needs and preferences. Many look closely at the risks related to certain trades when making their decision on which capital market instrument is best for their investment needs. It is important to do a bit of research yourself when choosing to invest in the capital market to determine which instrument fits your needs and which ones look to have fewer risks involved.

The capital market differs widely from money markets in the rate of return as well as the time frame for investments and the types of instruments used in investing. Both capital and money markets can be used to provide companies with the capital that they need but the time frame for investing is much different between the two. Capital markets typically offer investments with maturities of more than one year while money markets have many investments that mature after only a few months. The types of instruments are different as well. In money markets, CDs or certificates of deposit, commercial paper and treasury bills are common instruments. In the capital market stocks and bonds are the most commonly chosen instruments for investment.

The risk level is a bit different between capital markets and money markets as well. Because investments in the capital market are often much longer in maturity time they tend to carry higher risks than money market investments. However, because they have a higher risk level capital market instruments also tend to offer a much higher rate of return. Normally the higher the risk the higher the return potential in any investing market.

Choosing between capital and money market investments will depend on your specific preferences and how you feel about the higher risks involved. If you have decided to invest in capital market instruments it is important that you perform a bit of research and learn as much as possible about the market before you invest. You can also contact a financial advisor for more information on the various risks involved in capital market investing and learn whether or not this is the right path for your financial future.

Comments are closed.