Capital Market Instruments

5 Key excerpts on "Capital Market Instruments"

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  eBook - ePub

  Understanding Investments

  Theories and Strategies

  • Nikiforos T. Laopodis(Author)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  The main Capital Market Instruments are equities (common and preferred), debt securities such as federal, state and local, agency and corporate, and international debt (fixed-income) securities. We also presented briefly the derivative securities such as options and futures. We explored the differences, the advantages, and the disadvantages of each market and their instruments. We also discussed the secondary market, where outstanding instruments in both money and capital markets trade. Next, we explained the differences in yields and spreads among money market and Capital Market Instruments and what it means when investors switch from private bonds to government bonds. In addition, we identified and discussed three (additional) important risks that arise in the money and capital markets: the interest- and reinvestment-rate risks, inflation risk, and tax risk. Finally, in the last section of the chapter, we presented a few basic investment strategies that individual investors can apply when dealing with some money and Capital Market Instruments. Applying economic analysis Insider trading The SEC defines inside information as any private information by anyone who has access to that information within a corporation. Therefore, SEC rules prohibit trading on inside information (that is, before it becomes public). The SEC requires such inside trades to be made public and to be published (for instance, see The Wall Street Journal or the SEC’s Official Summary of Securities Transactions and Holdings). The idea is to inform the general public of any favorable or unfavorable information acted upon (implicitly) by insider trades. It is important to note that regulations do not prohibit insiders from trading, but only from using nonpublic information when they trade. Let us qualify, from an economics point of view, why insider trading is not allowed (unfair). The premise hinges upon the notion of information, specifically that information is free and available to anyone

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  Investment Management

  • (Author)
  • 2014(Publication Date)
  • Orange Apple

    (Publisher)

  Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties. Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere. Stock Market A stock market or equity market is a public (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion at the start of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values , cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together.

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  eBook - PDF

  Capital Market Instruments

  Analysis and valuation

  • M. Choudhry, D. Joannas, R. Pereira, R. Pienaar(Authors)
  • 2004(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  This vital issue is introduced in Chapter 8, and is followed in Chapter 9 by an advanced-level treatment of the B-spline method of extracting the discount function. This is a most efficient technique. The final chapter in Part II considers the analysis of inflation-indexed bonds, an important asset class in a number of capital markets around the world. REFERENCE Choudhry, M. Fixed Income Markets, Wiley Asia, 2004. DEBT MARKET INSTRUMENTS 24 Money market securities are debt securities with maturities of up to 12 months. Market issuers include sovereign governments, which issue Treasury bills, corpo- rates issuing commercial paper, and banks issuing bills and certificates of deposit. Investors are attracted to the market because the instruments are highly liquid and carry relatively low credit risk. Investors in the money market include banks, local authorities, corporations, money market investment funds and individuals. However the money market is essentially a wholesale market and the denomina- tions of individual instruments are relatively large. In this chapter we review the cash instruments traded in the money market as well as the two main money market derivatives, interest-rate futures and forward- rate agreements. OVERVIEW The cash instruments traded in the money market include the following: • Treasury bill • time deposit • certificate of deposit • commercial paper • bankers acceptance • bill of exchange. We can also add the market in repurchase agreements or repo, which are essen- tially secured cash loans, to this list. A Treasury bill is used by sovereign governments to raise short-term funds, while certificates of deposit (CDs) are used by banks to raise finance. The other instruments are used by corporates and occasionally banks. Each instrument repre- sents an obligation on the borrower to repay the amount borrowed on the maturity date, together with interest if this applies.

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  eBook - PDF

  An Introduction to Stock Exchange Investment

  • Janette Rutterford, Marcus Davison(Authors)
  • 2017(Publication Date)
  • Red Globe Press

    (Publisher)

  We now turn to securities market products, to explore the different types of securities on offer to investors in securities markets, including shares, bonds and derivative prod-ucts. We then explore the risks of these products before describing the basics of stock markets, in particular the benefits of such markets and their classifications. The chapter then looks at the concept of market efficiency and the efficient market hypothesis before ending with a historical profile of the London stock market. SECURITIES MARKET PRODUCTS The main investment products traded in the stock market – shares and bonds – are finan-cial claims on the companies, governments and other organisations that issue them in order to raise funds for their medium and long-term financing needs. These claims become the assets of investors who buy them, and liabilities of, or claims on, the entities that issue them. They form just a part (though a very important part) of the broader universe of products used by the financial markets to channel funds from economic sectors in financial surplus ( surplus sectors ) to economic sectors in financial deficit ( deficit sectors ). It is important to appreciate where marketable securities fit into the wider financial markets, and how the financial markets as a whole fit into the real economy , where non-financial or real assets (goods and services) are produced and distributed. By contrast, a financial asset is one that consists solely of a claim on a future stream of cash. When governments, companies and other organisations raise money from investors to finance their activities, they create many different forms of financial claims for investors to Investment basics 4 purchase. Claims created in a form that can continue to be readily bought and sold after their original issues are known as securities. If these securities have been accepted for trad-ing on a recognised market such as a stock exchange, they are called marketable securities.

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  eBook - PDF

  Capital Market Instruments

  Analysis and Valuation

  • M. Choudhry, D. Joannas, G. Landuyt, R. Pereira, R. Pienaar(Authors)
  • 2009(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Reference Choudhry, M. Fixed Income Markets, Wiley Asia, 2005. 24 Debt Market Instruments Money market securities are debt securities with maturities of up to 12 months. Market issuers include sovereign governments, which issue Treasury bills, corpo- rates issuing commercial paper, and banks issuing bills and certificates of deposit. Investors are attracted to the market because the instruments are highly liquid and carry relatively low credit risk. Investors in the money market include banks, local authorities, corporations, money market investment funds and individuals. How- ever the money market is essentially a wholesale market and the denominations of individual instruments are relatively large. In this chapter we review the cash instruments traded in the money market as well as the two main money market derivatives, interest-rate futures and forward- rate agreements. Overview The cash instruments traded in the money market include the following: • Treasury bill • time deposit • certificate of deposit • commercial paper • bankers acceptance • bill of exchange. We can also add the market in repurchase agreements or repo, which are essentially secured cash loans, to this list. A Treasury bill is used by sovereign governments to raise short-term funds, while certificates of deposit (CDs) are used by banks to raise finance. The other instru- ments are used by corporates and occasionally banks. Each instrument represents an obligation on the borrower to repay the amount borrowed on the maturity date, together with interest if this applies. The instruments above fall into one of two main classes of money market securities: those quoted on a yield basis and those quoted on a discount basis. These two terms are discussed below. 25 3 Money Market Instruments and Foreign Exchange The calculation of interest in the money markets often differs from the calcula- tion of accrued interest in the corresponding bond market.

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