In this article, we will continue the series of financial investment with the discussion of the structures of financial markets known as debt and equity markets in macroeconomics.
Borrowers Fund may use debt instruments such as bonds, debentures or mortgages. These financial instruments are legal document that requires the borrower to pay the lender a certain amount of interest payments until the due date. The expiration date is the date the bonds mature interest is paid at set intervals until the date of maturity, which the borrower pays the principal.
A debt instrument may be
a) short-term instruments require a year or less for payment
b) medium term
It can be paid between one and ten years.
c) the long term.
This is more than ten years to return.
The equity market raises funds by issuing shares that create ownership in the corporation. There are different types of equity markets
1 Primary markets:
Only sell new security issues. Brokerage firms act as intermediaries and subscribe for the securities, guarantees the price for the corporation or the government issues. Initial Public Offering (IPO) are usually pre-sold and not available to the public.
2 Secondary markets:
Resell values that have already been issued through primary market Yque sold on the open market without a price guarantee for brokers and distributors.
3 Exchange and over-the-counter markets:
This is the organized securities markets for buyers and sellers interact in the same physical place.
4 Through-counter markets (OTC):
Distributors maintain an inventory of securities that are sold over the counter to anyone who is willing to accept their prices.
III. Money Markets
Money markets traded securities with short maturities, usually one year or less.
1 The Treasury bills (T-bills):
This is debt instruments acquired by corporations, other governments and consumers to finance the deficit of the federal government.
2 Government bonds in the short term:
They are bonds that have a date of less than three years maturity and carry a fixed interest rate. They are equal security to a T-Bill.
3 State and municipal notes and short-term bonds:
These have interest rates that are determined by the credit rating of the issuer.
4 bankers’ acceptances:
These are bank checks issued by a company. They have an expiration date, usually 30 to 90 days and may, for a fee, are guaranteed by a bank. They are also virtually free of risk.
1) Capital markets
Capital market instruments are as follows:
1 The actions:
It is equity shares of a corporation.
2 Government bonds:
These are instruments of long-term debt with specific maturity dates, interest rates and high liquidity.
These are sold directly to consumers and always keep their nominal value and can be changed at any time.
4 State or provincial bonds:
These are issued by a state or provincial government.
5 Municipal Bonds:
Issued by local governments and often are used to finance specific projects.
6 Corporate bonds:
These are used to fund activities in the short and long term. They have a credit rating lower than government bonds, therefore, an interest rate higher.
Warrants are securities that give the option to buy a certain number of shares at a certain price for a certain period of time an individual.
a) Currency market
In the currency market, the currency is bought and sold.