Capital Market Characteristics and Instruments
Capital Market Characteristics and Instruments. In the financial sense, it is the market for the instruments representing long-term funds requirement of the corporation. It consists of a sprawling complex of institutions and mechanism whereby intermediate-term funds and long-term funds are pooled and made available to business, government, and individuals. In this mechanism outstanding instruments collecting the funds are transferable.
Characteristics of Capital Market
The characteristics of the capital market and its elements may be classified and measured in varieties of ways. There are a number of sub-markets having distinguished features and independent rates of yield. However, the capital markets assume the following characteristics:
◘ Debt and equities instruments traded in the capital markets are intermediate or longer-term in maturity.
◘ The scope of the market is very wide.
◘ The supply of the new funds comes from the same sectors although it is funneled within the markets through financial institutions.
◘ The demand for the capital market instruments comes from five categories like individuals and households, business and financial corporation, central government, local government, and foreign government.
◘ Under the auspice of capital markets, both negotiated and open markets are widely used.
◘ Transactions in open markets influence the prices and yields of longer-term instruments immediately.
◘ Lon-term instruments in the open market are transferred among the investors in the over-the-counter market and organized exchanges rather than the raising of new funds in the primary markets.
Capital Market Instruments
The major instruments traded in the capital markets are medium and longer-term in maturity are discussed below:
◘ Government securities with maturity of more than one year. They are marketable and their yields vary with changing credit and capital market conditions
◘ Longer-term debt owned by the government.
◘ Privately owned longer-term debt that is sponsored by the government.
◘ Long-term debt of local government.
◘ Long-term corporate bonds including corporate mortgage debt.
◘ Common stock, preferred stock
◘ Mortgage including residential, commercial, and industrial lien.