Capital market instruments

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Capital market deals with the various types of securities. The commonly traded securities of the capital market can be classified as :

1.Industrial securities 2.Gilt edged securities Industrial securities are those securities which are issued by public companies. These are two types. -ownership securities(equity shares or ordinary shares, preference shares, 4/30/12

The equity shares represent the ownership capital of a company. The equity shareholders collectively own the company and enjoy all rewards and risks associated with such ownership.

Different values of equity shares; -par value -issue price -market value
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Classification of equity shares;

-Blue-chip shares -Growth shares -Income shares -Defensive shares -speculative shares

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Preference share represents a particular portion of the share capital which has been endowed with certain preferences and limitations. These are hybrid instruments. Classification of preference shares; -cumulative and non-cumulative -redeemable and irredeemable -convertible and non-convertible -participating and non-participating
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Deferred shares deferred shares are those shares in which the right to share in the profits of the company is deferred that is postponed till all other shareholders receive their normal dividends.

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Creditor ship securities(debentures) Debentures are another kind of security traded in the capital market. A debenture is an acknowledgement of a debt by a company, usually issued under a common seal, and unsecured or secured by a fixed or floating charge on the assets of the company. The terms and conditions under which they are issued are endorsed on the back of the security.
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Classification of debentures *on the basis of conversion -convertible debentures -non-convertible debentures *on the basis of security -unsecured or naked debentures -secured or mortgage debentures *on the basis of repayment -Redeemable debentures
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-Irredeemable debentures

Gilt edged securities gilt edged securities are thus referred to, because the repayment of principal and interest is totally secured by a first charge on the nations purse. These securities are broadly classified into government and semi-government securities. Promissory notes, bearer bonds, public sector undertakings, stock certificates or inscribed bonds are the government securities. 4/30/12

New issue market

Stock market or securities market is a market where securities by companies in the form of shares, bonds and debentures can be bought and sold freely. The component of stock market are primary market and secondary market.

Primary market or new issue market is concerned with the issue of new securities.
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Issuers -issue by unlisted company -issue by listed company Investors -qualified institutional buyers -Non-institutional investors -retail investors Intermediaries The companies take the 4/30/12 assistance of many agencies for

lead managers Registrars and share transfer agents Bankers to the issue Underwriters Stock brokers Depositories

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Debt market
Debt market is a market where debt instruments are issued and traded. -bonds -debentures -secured premium notes Bonds these are long term debt instruments issued by the government of India, state governments or 4/30/12 undertakings owned by them, or

Participants of the debt market

Issuers Investors Credit rating agencies The regulatory bodies

Issuers -Financial institutions and banks

Public sector units Corporate entities

Investors
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Credit rating agencies

CRISIL(credit rating information services of India limited) ICRA(investment and credit rating agency of india limited) CARE(credit analysis and research limited

The regulatory bodies RBI,SEBI Issue of debentures and bonds -private placements
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Selection criteria -payment of interest -credit rating -diversification -period of bonds -nature of bonds

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Stock exchanges

Stock exchanges are organized market places in which stocks, shares and other securities are traded by members of the exchange, acting as both agents and traders.

Function of stock exchange -central trading place -settlement of transaction -continuous market -supply of long term funds 4/30/12

A stock is managed by a governing body consisting of: A president A vice president An executive director The nominees of the government

The process of recognition of stock exchanges Eligibility criteria for the membership of the stock exchanges 4/30/12

Members of the stock exchanges

Commission brokers, jobbers, arbitrageur, security dealings and so on. Speculation: speculation may be defined as buying things in the hope of selling them later at a higher price, or selling things which the speculator does not possess, hoping to buy them at a lower price.
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Ahmadabad stock exchanges ltd.

The recognized stock exchanges

Bangalore , Bombay, calcutta, jaipur, madhya pradesh, madras, interconnected stock exchanges of India limited, national stock exchange of India limited are some of the stock exchanges. BOMBAY STOCK EXCHANGE(BSE) BSE sensitive index(BSE-30) BSE national index(BSE-100)or BSE4/30/12

Meaning of derivatives
A bilateral contract or payments exchange agreement whose value is derived from the value of an underlying asset or underlying reference rate or index is known as derivative. Categories of derivatives -forward contracts A contract that obligates one counter party to buy and the other to 4/30/12 sell a specific underlying asset at a

Swaps Swaps are transactions that obligates the two parties to the contract to exchange a series of cash flows at specified intervals known as payment or settlement dates. A contract whereby two parties agree to exchange payments(swap), based on some notional principal amount is known as swap. Only the payment flows are exchanged and not the principal amount.
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Future contracts A transaction that obligates its owner to buy a specified underlying at a specified price on the contract maturity date or settle the value for cash is known as future contract. The basic form of a futures contract is similar to that of a forward contract. Forward rate agreement(FRAs) A forward contract on interest rate is known as a forward rate agreement. 4/30/12 It signifies an agreement between two

Options A derivative transaction that gives the option holder the right but not the obligation to buy or sell the underlying at a price, called the strike price, during a period or on a specific date in exchange for payment of a premium is known as option. Underlying refers to any asset that is traded. The price at which the underlying is traded is called the strike price or exercise price.
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