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Cpital market instrument

  1. Hemvati Nandan Bahuguna Garhwal University Department Of Business Management BUSINESS ENVIRONMENT SUBMITTED TO- dr.k.mahendra babu submitted by- vikash yadav topic -CAPITAL MARKET INSTRUMENTS
  2. INTRODUCTION  Capital market is the segment of financial market that dealing with effective channeling of medium to long term funds from surplus to deficitunits  Normally the process of transfer this channeling is through documents or certificates; thus is showing evidence of investments. PRIMARY ROLE  The primary roles of capital market is to raise long term funds for government, banks, and corporation while providing platform for the trading of securities.  This fund raising is regulated by the performance of stocks and bonds market within the capital market  This fund raising is regulated by the performance of stocks and bonds market within the capital market
  3. NATURE OF CAPITAL MARKET  It has two segments: This means that the capital market is divided in two types which is primary market and secondary market.  It deals with long term securities.  It help capital formation.  It help in creating dealing with capital market you can create liquidity of your asset easily  It perform trade off functions  It create dispersion in business ownership TYPES OF CAPITAL MARKET  Primary market : The primary markets deal with the trading of newly issued securities  Secondary market : Also called after market is the financial market in which previously issued financial instruments such as stock, bonds, option and future are bought and sold.
  4. CAPITAL MARKET INSTRUMENTS 1. Equity instruments ( common stocks) 2. Debt instruments 3. Insurance instruments. 4. Hybrid instruments 5. Derivatives (Future contract, forward contract, options, swaps)
  5. Equity instruments • Equity is used in accounting in several ways. Often the word equity is used when referring to an ownership interest in a business. Examples include stockholders’ equity or owner's equity • In the capital market equity is used as a source of finance (capital) • When the company wants to raise funds it can issue common stock of preference shares.  The main types of equity are 1. Common stock: -A security that represents ownership in a corporation. 2. Preferrence shares :-The holder of preference share also own some percentage of the company but cannot participate in anything to the company. 3. Cumulative prefered stock:-A preferred stock will typically have a fixed dividend yield based on the per value of the stock. The dividend usually is paid out at set of interval, usually quarterly to preferred stock.
  6. 4. Non Cumulative prefered stock:- A preferred stock dose not pay the holder any unpaid or omitted dividends 5. Participating preferred stocks:-Atype of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividend receive as well as an additional dividend based on some predetermined condition. 6. Convertible preferred stocks:-Preferred stock that includes an option for the holder to convert the preferred stock into a fixed number of common shares, usually any time after a predetermined date.
  7. DEBT INSTRUMENTS • A paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, certificates, mortgages, leases or other agreements between a lender and a borrower. • Debt instruments are a way for markets and participants to easily transfer the ownership of debt obligations from one party to another • A debt instrument is used by government or organization to generate funds for longer duration. • The relation between person who invest in debt instrument is of lender and borrower . • This gives no ownership right. • A person receives fixed rate of interest on debt instrument.
  8. TYPES OF DEBT INSTRUMENTS 1. Debenture 2. Bond • Government bond • Corporate bond • Convertible bond 3. Loan 4. Mortagages
  9. IMSURANCE INSTRUMENT • Is a financial instruments whose values are driven by insurance loss events.Those such instruments that are linked to property losses due to natural catastrophes represent a unique asset class, the return from which is uncorrelated with that of the general financial market. • Insurance companies are in the business of assuming risk for individuals and institutions. • They manage those risks by diversifying over a large number of policies, perils and geographic regions. There are two important ways insurers profit in thisbusiness.
  10. DEBT INSTRUMENTS • Debt instrument or debt financing allows you to pay for new buildings, equipment and other assets used to grow your business before you earn the necessary funds.  The most common type of hybrid security is: • convertible bond: which have features of an ordinary bond but is heavily influenced by the price movements of the stock into which it is convertible. Normally the owner of convertible bond have the right to convert convertible bond to share (common stock) in the issuing company or cash of equal value. • convertible preference share : which pay dividends at a fixed or floating rate before common stock dividends are paid and can be exchanged for shares of the underlying company's stock.