Capital Market Securities (2024)

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Selam Teshome, MBA, MA Capital Market Securities (1)

Selam Teshome, MBA, MA

Managing Director at Cornerstone Advisory Sevices

Published Feb 20, 2023

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Capital market securities are financial instruments that are issued by corporations and governments to raise capital. These securities can be in the form of debt securities, equity securities, and derivatives. Capital market securities give investors the opportunity to build wealth over time by investing in diversified assets and earning returns on those investments.

Debt securities are like loans that provide the holder with a predetermined stream of payments over a certain period. They can be short-term or long-term and are generally issued by governments and corporations to fund projects or operations. Common types of debt securities include government bonds, corporate bonds, and asset-backed securities. Debt security holders are paid back before equity holders in case of market downturns or bankruptcies. When investing in debt securities, investors need to consider various factors, such as credit ratings, yield spreads, and duration.

Equity securities represent ownership in a company. Equity security holders are called shareholders and have the right to vote on certain matters and decisions regarding how the company is run, receive dividends from profits, and share in any capital gains if the value of their shares increases. Common stock and preferred stock are two types of equity securities. Common stockholders are able to vote and receive dividends, while preferred stockholders have priority over common shareholders if the company were to liquidate or go bankrupt.

Derivative securities derive their value from an underlying asset, such as a stock, bond, commodity, or currency. They are used by investors to hedge against risk and speculate on the direction of price movements in markets. Options, futures, forwards, and swaps are different types of derivative securities. Options give the holder the right, but not the obligation, to buy or sell an underlying asset at a set price before an expiration date. Futures oblige parties to buy or sell a certain asset at a pre-determined price on a specified date in the future. Forwards contracts have more flexible terms than standard futures, including customizable delivery dates, settlement methods, and payment schedules. Swaps are contracts between two parties to exchange one financial asset or obligation for another.

Overall, capital market securities offer investors a variety of opportunities to diversify and grow their portfolios. Debt securities provide investors with steady income while also providing some protection from volatility. Equity investments come with potentially higher returns compared to debt securities and are ideal for those looking for exposure to high-growth industries. Derivatives offer numerous benefits in terms of hedging risk and providing access to certain asset classes otherwise unattainable through traditional investment methods alone. It is important for individual investors to carefully consider all options before making any decisions so they can select the best instruments suited towards meeting their long-term financial goals.

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Capital Market Securities (2024)


Capital Market Securities? ›

Capital markets primarily feature two types of securities – equity securities and debt securities. Both are forms of investments that provide investors with different returns and risks and provide users with capital with different obligations.

What are the 4 types of securities? ›

There are four main types of security: debt securities, equity securities, derivative securities, and hybrid securities, which are a combination of debt and equity.

What are the 3 types of capital market? ›

These venues may include the stock market, the bond market, and the currency and foreign exchange (forex) markets.

Which of the following are examples of capital market securities? ›

Stocks, bonds, preferred shares, and ETFs are among the most common examples of marketable securities. Money market instruments, futures, options, and hedge fund investments can also be marketable securities.

What is a capital securities? ›

Capital Security means, with respect to any Person, (a) any share of capital stock of or other unit of ownership interest in such Person or (b) any security convertible into, or any option, warrant or other right to acquire, any share of capital stock of or other unit of ownership interest in such Person.

What are the major types of securities traded in capital market? ›

There are primarily three types of securities: equity—which provides ownership rights to holders; debt—essentially loans repaid with periodic payments; and hybrids—which combine aspects of debt and equity.

Are securities the same as stocks? ›

The term "security" is defined broadly to include a wide array of investments, such as stocks, bonds, notes, debentures, limited partnership interests, oil and gas interests, and investment contracts.

What is the difference between the capital market and the securities market? ›

The stock market exclusively works with corporations regulated by the Securities Exchange Commission (SEC), while the capital market extends beyond regulated securities. The stock market doesn't have trades of any government instruments, while the capital market includes US treasuries and municipal bonds.

What is the best example of capital market? ›

What are examples of capital markets? The New York State Exchange, NASDAQ, London Stock Exchange, and the American Stock Exchange are some highly organized capital markets. NASDAQ offers electronic trading as opposed to the other capital markets.

What are the two main types of capital markets? ›

Capital market consists of two types i.e. Primary and Secondary.
  • Primary Market. Primary market is the market for new shares or securities. ...
  • Secondary Market. Secondary market deals with the exchange of prevailing or previously-issued securities among investors.

What are not considered capital market securities? ›

Answer: A 6-month treasury bill (option C) would not be considered capital market security. Explanation: A money market is a market for short-term securities or short-term funds for a period of up to one year.

Is common stock a capital market security? ›

By issuing common stocks, a corporation intends to raise equity capital to support its operations. Equity capital from selling stocks will not return to the shareholders in the future. Thus, a common stock should be a capital market security.

Is 401k a marketable securities? ›

Marketable securities can also include the mutual funds you have in your 401(k). While these mutual funds may be marketable, the 401(k) is just a type of retirement account and is not a security at all.

Is securities debt or equity? ›

Equity securities represent a claim on the earnings and assets of a corporation, while debt securities are investments in debt instruments. For example, a stock is an equity security, while a bond is a debt security.

What is capital vs treasury stock? ›

Capital stocks are the shares outstanding for a company. They may be purchased, and with them, an investor gains voting rights and sometimes dividends. Treasury stock, or treasury shares, are shares a company owns. They do not carry voting power and do not pay out dividends.

What are the five types of securities? ›

Types of securities
  • Equity securities. Equity securities, commonly known as stocks or shares, represent ownership in a company. ...
  • Debt securities. ...
  • Hybrid securities. ...
  • Derivative securities. ...
  • Asset-backed securities.

What are the most common securities? ›

If you've done any investing at all, you're probably familiar with the more common terms describing traditional securities: stocks, bonds, exchange-traded funds (ETFs), mutual funds, and so on.

What are the three main types of securities? ›

In the United States, the term broadly covers all traded financial assets and breaks such assets down into three primary categories:
  • Equity securities – which includes stocks.
  • Debt securities – which includes bonds and banknotes.
  • Derivatives – which includes options and futures.

What are considered securities? ›

In the investing sense, securities are broadly defined as financial instruments that hold value and can be traded between parties. In other words, security is a catch-all term for stocks, bonds, mutual funds, exchange-traded funds or other types of investments you can buy or sell.

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