Capital Market Instruments

Introduction to Capital Market Instruments

Capital market instruments are financial tools used to raise funds for businesses and governments. They are essential components of the financial system, allowing for the transfer of capital between investors and entities in need of funds.

Key instruments include:

• Shares/Stocks: Represent ownership in a company. Shareholders may receive dividends and have voting rights in company decisions.
• Debentures: A type of debt instrument that companies issue to borrow money. Debenture holders are creditors and receive interest payments.
• Bonds: Similar to debentures but often issued by governments. They pay periodic interest and return the principal at maturity.

Understanding Shares and Stocks

Shares, also known as stocks, are units of ownership in a company. When you buy shares, you become a part-owner of the company.

• Types of Shares: Common shares and preferred shares.
• Dividends: Profits distributed to shareholders, usually on a per-share basis.
• Market Value: The price at which shares are bought and sold on the stock market.

Worked Example: Calculating Dividend Income

Understanding Debentures

Debentures are long-term securities yielding a fixed rate of interest, issued by a company and secured against assets.

• Interest Payments: Regular payments made to debenture holders.
• Maturity Date: The date when the principal amount is repaid.
• Secured vs. Unsecured: Secured debentures are backed by collateral, while unsecured are not.

Worked Example: Calculating Interest on Debentures