Various Capital Market Instruments

Capital market instruments are debt and equity instruments with maturities greater than one year, meaning they aren’t meant for real short term investments. Typically, these investments tend to be a little more risky than others, and tend to fluctuate in price more than say a money market fund would. There are several examples of various capital market instruments.

A first and most obvious example of a capital market instrument would be a stock. Basically, stocks are a claim on the net income of a company, and are technically buying a portion of equity in a particular company.

Another example of a capital market instrument would be a mortgage. A mortgage is basically just a loan to households or firms to purchase land or architectural structures, while using land as collateral for the loan. Mortgages are extremely popular in the United States, and tend to be one of the highest debt holders in the United States.

A third example of capital market instruments would be corporate bonds. Corporate bonds are long term investments, which are issued by very large corporations in good economic and financial standing. Some corporations also allow the owners of corporate bonds to convert their bonds into a certain amount of shares in public stock for that particular company, if the owner decides they’d rather own the stock.

Other examples of capital market instruments include various United States Government bonds and securities. Some of these include United States Government Securities, which are long term debt instruments issued by the United States Treasury, to finance the deficits of the United States Government. Others include United States Government Agency Securities, which are long term bonds issued by various government agencies.

Most of these investments are guaranteed secure by the Federal Government. There are also of course state and local government bonds, which are very popular. State and local bonds, also called municipal bonds are long term debt instruments issued by the state and local governments to finance various projects and expenses that a local government incurs. The best advantage of these bonds is that the income on them is tax exempt, although this typically means that a lower interest payment is issued to the holder of the bond.

A final type of capital market instrument would be consumer and commercial bank loans, which are loans to consumers and business made by banks, and occasionally finance companies.

Overall, there are a lot of different types of capital market instruments, it’s up to you to decide which ones are the right way for you to invest.