RISHAV GUPTA
BBA LLB (H)
A90821517057
FMR ASSIGNMENT
FIVE INSTRUMENTS OF CAPITAL MARKET
1. Equities:
Equity securities refer to the part of ownership that is held by shareholders in a company.
In simple words, it refers to an investment in the company’s equity stock for becoming a
shareholder of the organization.
The main difference between equity holders and debt holders is that the former does not get
regular payment, but they can profit from capital gains by selling the stocks.
Also, the equity holders get ownership rights and they become one of the owners of the
company.
When the company faces bankruptcy, then the equity holders can only share the residual
interest that remains after debt holders have been paid.
Companies also regularly give dividends to their shareholders as a part of earned profits
coming from their core business operations.
2. Debt Securities:
Debt Securities can be classified into bonds and debentures:
1. Bonds:
Bonds are fixed-income instruments that are primarily issued by the centre and state
governments, municipalities, and even companies for financing infrastructural development
or other types of projects.
It can be referred to as a loaning capital market instrument, where the issuer of the bond is
known as the borrower.
Bonds generally carry a fixed lock-in period. Thus, the bond issuers have to repay the
principal amount on the maturity date to the bondholders.
2. Debentures:
Debentures are unsecured investment options unlike bonds and they are not backed by any
collateral.
The lending is based on mutual trust and, herein, investors act as potential creditors of an
issuing institution or company.
3. Derivatives:
Derivative instruments are capital market financial instruments whose values are determined
from the underlying assets, such as currency, bonds, stocks, and stock indexes.
The four most common types of derivative instruments are forwards, futures, options and
interest rate swaps:
Forward: A forward is a contract between two parties in which the exchange occurs at the
end of the contract at a particular price.
Future: A future is a derivative transaction that involves the exchange of derivatives on a
determined future date at a predetermined price.
Options: An option is an agreement between two parties in which the buyer has the right to
purchase or sell a particular number of derivatives at a particular price for a particular period
of time.
Interest Rate Swap: An interest rate swap is an agreement between two parties which
involves the swapping of interest rates where both parties agree to pay each other interest
rates on their loans in different currencies, options, and swaps.
4. Exchange-Traded Funds:
Exchange-traded funds are a pool of the financial resources of many investors which are used
to buy different capital market instruments such as shares, debt securities such as bonds and
derivatives.
Most ETFs are registered with the Securities and Exchange Board of India (SEBI) which
makes it an appealing option for investors with a limited expert having limited knowledge of
the stock market.
ETFs having features of both shares as well as mutual funds are generally traded in the stock
market in the form of shares produced through blocks.
ETF funds are listed on stock exchanges and can be bought and sold as per requirement
during the equity trading time.
5. Foreign Exchange Instruments:
Foreign exchange instruments are financial instruments represented on the foreign market. It
mainly consists of currency agreements and derivatives.
Based on currency agreements, they can be broken into three categories i.e spot, outright
forwards and currency swap
