- Report this article
Selam Teshome, MBA, MA
Selam Teshome, MBA, MA
Managing Director at Cornerstone Advisory Sevices
Published Feb 20, 2023
+ Follow
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.
Recommended by LinkedIn
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.
Like
Celebrate
Support
Love
Insightful
Funny
22
To view or add a comment, sign in
More articles by this author
No more previous content
- Major Stock Market Crashes May 17, 2023
- Major Stock Markets Globally May 10, 2023
- Stock Exchange Listing Rules May 3, 2023
- Institutional Investors Apr 26, 2023
- Measuring the Performance of Stock Markets Apr 19, 2023
- Disclosure Requirements in Capital Markets Apr 12, 2023
- Securities Trading Apr 5, 2023
- Public Offering Mar 29, 2023
- Primary and Secondary Markets Mar 22, 2023
- Risks in Capital Markets Mar 15, 2023
No more next content
Sign in
Stay updated on your professional world
Sign in
By clicking Continue to join or sign in, you agree to LinkedIn’s User Agreement, Privacy Policy, and Cookie Policy.
New to LinkedIn? Join now
Insights from the community
- Investment Banking How can you explain equity and debt securities to clients?
- Economics What are the most effective ways to analyze the bond market?
- Investment Banking How do you ensure equity and debt capital markets research is relevant to your clients?
- Business Management What are the implications of a bond's maturity date on its pricing?
- Investment Banking What methods can you use to assess the creditworthiness of bond issuers?
- Final Accounts How do you compare and contrast different types of leverage ratios to evaluate a company's risk and return?
- Business Valuation How do you calculate the free cash flow to equity (FCFE) from the unlevered cash flow (UFCF)?
- Final Accounts What are the main types of leverage ratios and how do they measure the financial risk of a firm?
Others also viewed
- The Power of Announcements - The FED at its best David Kohler, CFA, CAIA, FRM 4y
- Hate the equity? Don't hate the bond Michael Rockliff 6y
- Junk rally makes some investors nervous Shankar Ramakrishnan 6y
- What You Need To Know About High Yield Bonds Martin A. Smith, President, CRPC®, AIFA® 8y
- If America’s debt spiral gets worse, here’s the stock that may benefit, says fund manager MarketWatch 1y
- With stable cash flows and no near-term debt maturities, UAFRS shows creditors’ worries about this firm’s ability to pay its debts is excessive Joel Litman 2y
- Breaking Down the Dynamics of the Primary Bond Market Vuk Magdelinic 7y
- FIXED INCOME SECURITIES Charvi Parmar 4y
- US Equity Market: Jan 14th 2019 Sit-rep Mourad Mazouni 5y
Explore topics
- Sales
- Marketing
- IT Services
- Business Administration
- HR Management
- Engineering
- Soft Skills
- See All