What Are Capital Market Instruments?

Capital market instruments come in the form of medium- or long-term stocks and bonds. Capital markets attract individual investors, governments, investing firms, banks and other financial institutions because capital market instruments are valuable assets.

Capital market instruments are avenues that allow investors to receive income. A stock is the purchase of a stake in a company’s assets. There are two types of stock: preferred and common. Common stock allows the stakeholder to vote at shareholder meetings. Preferred stock does not permit such voting, but the investor gets a higher stake in the company.

A bond is an instrument of debt to the bond holder. The bond seller is obligated to pay interest to the holder until the debt is paid in full. Stocks and bonds are also known as securities, including notes and equities.

Assets such as bonds and stocks can be found in primary markets, which are part of capital markets. Primary markets are forums where owners sell the bonds and stocks to investors. Capital markets should not be confused with money markets, since money markets usually do not offer maturities that last beyond a year. Those offering the capital seek the highest possible return with minimal risk, and those seeking the instruments want the lowest possible price.