There are a number of
capital market instruments that are the medium of trade in the market. These are used by the investors to make good profit from this market. These capital market instruments include stocks, bonds, debentures, T-bills, foreign exchange, fixed deposits and many more. All these are termed as instrument of capital market because these are responsible for generating funds for the companies, corporations and sometimes for the national government also.
Trade on debt and equity securities are done in this market. This market is also known as securities market as long term funds are raised from this market. These activities are done by different companies and the government. 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.
Stock and bond are the two basic
capital market instruments and are used in two different markets. There are three different types of the market where stocks are used as the capital market instrument. These are called physical, virtual, and auction market. On the other hand, the bonds are traded in the separate bond market. This market is also known as 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 provides less return than the other capital market instruments.
All these
capital market instruments provide some high returns but the risk factor is different and the selection of the instrument depends on the choice of the investor. The risk tolerance factor and the expected returns from the investment plays a decisive role in the selection of the
capital market instruments. The capital market instruments should be selected after doing proper research because these can increase the returns heavily and can reduce the risk factors also.