There are a number of capital market instruments used for market trade, including stocks, bonds, debentures, T-bills, foreign exchange, fixed deposits, and others. These are used by the investors to make a profit out of their respective markets.All of these are called capital market instruments because these are responsible for generating funds for companies, corporations, and sometimes national governments.
This market is also known as securities market because long term funds are raised through trade on debt and equity securities.
These activities may be conducted by both companies and governments.
This market is divided into primary capital market and secondary capital market.
The primary market is designed for the new issues and the secondary market is meant for the trade of existing issues.
Stocks and bonds are the two basic capital market instruments used in both the primary and secondary markets. There are three different markets in which stocks are used as the capital market instrument: the physical, virtual, and auction markets.
Bonds, however, are traded in a separate bond market. This market is also known as a debt, credit, or fixed income market.
Trade in debt securities are done in this market. There are also the T-bills and Debentures which are used as capital market instruments by the investors.
These instruments are more secured than the others, but they also provide less return than the other capital market instruments.
While all capital market instruments are designed to provide a return on investment, the risk factors are different for each and the selection of the instrument depends on the choice of the investor.
The risk tolerance factor and the expected returns from the investment play a decisive role in the selection by an investor of a capital market instrument.
Capital market instruments should be selected only after doing proper research in order to increase one
