Theory question 108
Financial Institutions(a) What is a capital market?
(b) Describe any three instruments used in the capital market
Show the model answer
Model answer
(a) A capital market is the market for medium- and long-term funds, where long-term securities are issued and traded, e.g. through the stock exchange, issuing houses, development banks and insurance companies.
(b) Any three: shares (ordinary and preference) – part ownership of a company; debentures – long-term loans to companies with fixed interest; government development stocks/bonds – long-term government borrowing; mortgages – long-term loans secured on property; industrial loans; unit trusts.
Explanation
Instruments are the long-term securities traded in the market.