Capital Markets
Capital Markets
Financial market is a market place all financial instruments are bought and sold. Generally, all companies and government backed institutions sell their financial instruments in these financial markets to raise capital for their sort and long term financial requirements.
Securities can be either traded through an exchange or through OTC (Over the Counter). Capital market securities are traded either in equities market or bond market depending on what the security is.
Capital market is one such financial market where companies and institutions sell their financial instruments for long term capital requirements. Equities and Bonds are those financial instruments that are sold in capital markets.
Equities: Equal share in the capital of the company that is traded in exchange market. Equities traded by the entity selling represents equal share of ownership in the company.
When a private company wants to raise capital for their long term financial needs they first announce IPO (Initial Public Offer) in the exchange market. Once the IPO rates are finalized through bidding process between the given dates, the entry cost of each equity is fixed and traded to other individuals, financial institutes, AMC (Assert Management Company) through the primary market.
Primary Markets: Primary market is a capital market where all IPOs are traded. Freshly issued securities are traded in the primary market. Primary markets are also known as IPO market or freshly traded market.
Secondary Markets: A capital market in which already issued equities is traded between individuals, Institutional investors and AMCs. Secondary market is also known as after market.
Types of Equities:
Normal Shares (equities) – Shares that are issued in the primary (IPO) market and then traded normally in the
Secondary markets: All such shares have voting rights. In case when the company is dissolved, normal equity share holders get the last chunk of cash after Bond (Fixed income – FI) and preferential share holders.
Preferential shares (equities) – These are shares that are issued to a specific group and these shares have much higher priority over normal shares. Preferential share holders do not have any voting rights. Preferred share holders do not have any ownership in the company. In case the company is dissolved preferential share holders get priority of settlement next to the FI (Bond) holders.
Bond – A bond is a fixed income financial instrument which has guaranteed income after a fixed period of time. The interest that is obtained on the principle is known as a coupon. The coupon is payable to the bond holder either monthly, quarterly or half-yearly depending on what is requested by the holder.
Types of Bonds:
Government Bonds – FI securities that are issued by the government is defined as government bonds. These bonds have assured income after a fixed time period. Government is always in local currency.
Municipal Bonds – Bonds issued by Municipal is called municipal bonds. These are also called as “Munis”. These bonds have a fixed rate of interest and fixed time for maturity.
Corporate Bonds – FIs that are issued by corporate are referred as corporate bonds. These FIs are little risky compared to government and municipal bonds. Corporate bonds return much higher rate of interest when compared to government bonds or munis.
Domestic bonds – Domestic bonds are those that are issued in the domestic market by domestic players. These are issued in local currency of the country in which these are issued.
Other bonds are foreign bonds, Euro Bonds, Convertible Bonds, Callable Bonds, Puttable Bonds, Zero coupon bonds, floating rate bonds, fixed interest rate bonds.
For further information, please write to me at arun.vijayaraghavan@focustesting.com
Thanks,
Arun
Arun Vijayaraghavan is a Senior QA working for one of the world's largest Investment Banks. Arun has extensive experience in Retail Banking, Investment banking and non-life insurance domains.
