Are you willing to know the detailed information about the Capital Market Instruments? Here is the article which provides you the detailed information about the Capital Market Instruments. The Capital Market Instruments are used for the Market trade which includes the stocks and bonds, treasury bills, foreign exchange, fixed deposits, Bond Certificate and many more. As this capital market involves in debts and equity securities, these instruments are also called as securities, and this type of market is called as "Security market".
These are some types of Capital Market Instruments:-
Derivatives:- These are the instruments which are derived from the other securities and which are referred to as "underlying assets". Here the price, riskiness, and functions are depending upon the underlying assets. And here the derivative might be an asset(or) index. Derivatives are mostly common in developed economies.
These are some of the Examples, which are mentioned below,
- Mortgage-Backed Securities
- Asset-Backed Securities
- Futures
- Options
- Swaps
- Rights
- Exchange Traded Funds or commodities
Here the above-mentioned examples are in the form of Nigeria is Rights whereas the holder has to exist security and gets the opportunity to acquire additional quantity to his holding in an allocated ratio.
Equities:- This type of instrument are issued by the companies and it is also known either in the primary market or the secondary market. This type of Investment is in the form of a business move to ownership of the business as the contract stands in perpetuity unless sold to another investor in the secondary market. This investor has possessed certain rights and privileges in the company.
This is one of the risk factors in this instrument is high and thus yields a higher return.
Debt Instruments:- It is used for either companies or governments to generate funds for capital-intensive projects. It can be obtained either through the primary or secondary market. The relationship in this form of instrument ownership is that of a borrower creditor and then it does not necessarily imply ownership in the business of the borrower. T
When the instrument is issued by:
- The Federal Government is also called as Sovereign Bond.
- A state government is called as State Bond.
- A local government is called Municipal Bond.
- A corporate body is called Debenture, Industrial Loan or Corporate Bond
Preference Shares:- This instrument is issued by corporate bodies and the investors rank second on the scale of preference when a company goes under. This can also be treated as a debt instrument as they do not confer voting rights on its holders and have a dividend payment that is structured like interest paid for bonds issues.
Preference shares may be:
- Irredeemable, the convertible is the maturity of the instrument, the principal sum being returned to the investor is converted to equities even though dividends (interest) had earlier been paid.
- Irredeemable, non-convertible are the holder can only sell his holding in the secondary market as the contract will always be rolled over upon maturity. The instrument will also not be converted to equities.
- Redeemable is the principal sum is repaid at the end of a specified period.
