What are capital markets and what role do they play in helping companies raise money for investment?
Capital markets refer to financial markets involve in buying and selling of bonds and securities. They act as primary or secondary markets. Bonds in primary markets are issued and new stock sold to investors through underwriting. The government becomes the primary entity seeking to raise long-term funds on the primary markets. Secondary markets entail the existing securities being purchased and sold among traders increasing the willingness of investors in primary markets.
What types of securities are bought and sold in capital markets?
Securities are the investments that are traded on in the secondary market which enables an investor to own the underlying assets without taking possession. These securities include bonds, equity securities such as shares of a company and derivative securities based on the value of the underlying assets such as bonds, stock among others.
What long term debt instruments do corporations use?
The long-term debt instruments used by cooperation include issuing of bonds and long-term leases of assets. Additionally, cooperation’s issue notes, take loans and perform financial agreements as long-term debt financing.
How can leasing be a type of long term financing?
Leasing becomes a long-term financing instrument in that the owner of the asset gives the lessee the right to use the asset for a regular payment which is done monthly. The lessee uses the asset through the payment. However, the asset remains in possession of the lessor for the entire period of the contract, the lessee then returns the asset when the contract period expires to the owner or can make purchasing if a new price is issued or if they enter into a new agreement.
What are the differences between financing with common stock and preferred stock?
Common stock shareholders are issued with the right to vote with the number of votes reflecting the numbers of shared ownership. Common stock entitles the shareholders to share profits through capital appreciation and dividend. The common stockholders through capital gains have the potential for profits and their dividend payouts depend on the mercies of the company’s oar of directors. In this instance, the directors can decide to pay or not to pay as well as the amount that they should be paid. Whereas preferred stockholders have no voting rights, but possess a higher claim of the company’s assets. They receive the dividend before common stockholders and are usually given higher payments. They are paid in the case whereby the company is declared bankrupt before the common stockholders are paid.