Write short notes on Instruments in capital market.
Answers
Answer:
Capital Market is a market for financial investments that are direct or indirect claims to capital.
It is wider than the securities market and embraces all forms of lending and borrowing. It is a market,
where business enterprises and governments can raise long-term funds. Capital market is wider term
and includes security market.
Security market is market where equity shares, preference shares, debentures and bonds are traded.
Security market has following two segments:
(a) Primary Market : Primary market is that part of the capital markets that deals with the issuance of
new securities. Companies, governments or public sector institutions can obtain funding through
the sale of a new shares or bond issue. The primary market is the market where the securities are
sold for the first time. Therefore it is also called the New Issue Market (NIM).
The issue of securities by companies can take place in any of the following methods:
- Initial public offer
- Further issue of capital
- Rights issue
- Firm allotment
- Offer to public
- Bonus issue
(b) Secondary Market : The secondary market, also known as the aftermarket, is the financial market
where previously issued securities and financial instruments such as stock, bonds, options, and
futures are bought and sold.
The stock market or secondary market ensures free marketability, negotiability and price discharge.
Secondary market has further two components:
u Spot Market : Where securities are traded for immediate delivery and payment.
u Futures Market : Where the securities are traded for future delivery and payment.