What Are the Different Types of Capital Market Instruments?

The capital market refers to the financial market for securities financing and operating medium and long-term capital borrowing for more than one year. It is an equity asset representing the company's shares, and its purpose is to raise long-term funds for the enterprise.

Capital market tools

Right!

Capital market is

The stock has no expiration date, and the enterprise does not have to recover the stock because of expiration.

Stocks in the primary market are

For investors, they can earn dividends and stock spreads, and have voting rights, but there is a high risk of stock price changes.

For enterprises, issuing medium-term and long-term funds can be smoothly obtained, and the cost of funds is quite low. Only the issue cost at the time of issuance does not need to pay specific dividends or dividends.

(B) Public debt

(1) Definition: The debt certificate issued by the government specifies a long-term credit instrument that pays interest on schedule and repays the principal at maturity. Its purpose is to adjust government revenue and expenditure and support public construction.

(2) Characteristics:

Public bond issuers include the Central Bank, the Taiwan Provincial Government, and the municipal government. The issue methods are based on bidding or non-bidding. Only central bond dealers can buy them in the primary market, and bond dealers sell the bonds to financial institutions Or the general public.

There is a certain period, and the principal and interest need to be repaid when the debt is due.

When bonds are issued, they are issued at a discount or premium based on the coupon rate, and the value of the bond's secondary market changes inversely with the yield.

Secondary market transaction methods include buyout and conditional transactions.

The issue price is divided into bidding and non-bidding decisions. The public can purchase from the post office, and the price is based on the non-bid weighted average interest rate.

(3) advantages and disadvantages:

For investors, the return of public debt is interest income per period, and its return rate is equivalent to the interest rate of fixed deposits. In addition, public debt can be used as a guarantee for public affairs and pledges, and it is safe, reliable, and low risk. benefit. Bonds have low liquidity and low price fluctuations.

For the government, the issue of public debt can smoothly obtain medium and long-term funds

(C) Corporate bonds

(1) Definition: The debt certificate issued by an enterprise specifies long-term securities that pay interest on schedule and repay the principal at maturity. Its purpose is to absorb medium and long-term funds.

(2) Type:

Secured corporate bonds and unsecured corporate bonds: The issuance of corporate bonds, if all or part of the company's assets are used as a guarantee for repayment of principal and interest, are secured corporate bonds, or mortgaged corporate bonds: Those with specific collateral are unsecured corporate bonds.

Convertible corporate bonds and non-convertible corporate bonds: holders of corporate bonds convert corporate bonds into shares of the company at a certain price within a certain period, which is called convertible corporate bonds; otherwise, corporate bonds cannot be converted into shares , Called non-convertible corporate debt.

(3) Characteristics:

Corporate bonds are usually guaranteed by banks and commissioned by securities dealers for underwriting and issuance, while secondary markets are traded on the counter or listed on the centralized securities trading market.

There is a certain period, and the principal and interest need to be repaid when the debt is due. If creditors have priority over shareholders in liquidation.

When corporate bonds are issued, they are issued at a discount or premium to the coupon rate, and their market value and yields change in the opposite direction.

(4) advantages and disadvantages:

For investors, the return of corporate bonds is interest income per period, and the rate of return is slightly higher than the interest rates of time deposits and public debt, but the risks are relatively high. The interest rate of convertible corporate bonds is low, but if the company's stock rises in the future, it can be profitable by converting into stocks.

For enterprises, medium and long-term funds can be obtained smoothly by issuing corporate bonds, but the cost of funds (including underwriting fees and interest burden) is high.

(D) Financial bonds

(1) Definition: It is a medium and long-term debt certificate issued by a financial institution. The purpose is to raise medium and long-term funds.

(2) Characteristics:

According to the Banking Law, only savings banks and professional banks are allowed to issue, and the maximum issuance must not exceed 20 times the bank's net worth.

Issuance procedures are usually approved by the board of directors of the bank and publicly issued after approval by the Ministry of Finance. There are many financial institutions and private institutions for the offender.

There is a certain period, and the principal and interest need to be repaid when the debt is due.

(3) advantages and disadvantages:

For investors, the return of financial bonds is interest income per period, and the rate of return is slightly higher than the term deposit interest rate, but the liquidity is very low.

For financial institutions, it has the following three benefits. First, it can secure a more stable source of funds. Second, the statutory deposit reserve is required, and third, there is no need to pay deposit insurance premiums to the central deposit insurance company.

(E) Savings certificate

(1) Definition: The debt certificate issued by the central bank aims to absorb savings funds.

(2) Characteristics:

The term is divided into six months, one, two, and three years. The interest rate is announced by the central bank. The six-month principal and interest are settled once, compounded every six months, and the term principal and interest are settled once.

Some financial institutions are entrusted by the central bank to sell at face value, and the issue targets are financial institutions, individuals, foundations, and private enterprises.

(F) Central Bank transferable time deposit certificates

(1) Definition: The fixed deposit certificates issued by the central bank that can be circulated and transferred in the secondary market are for the purpose of regulating finance.

(2) Characteristics:

The term is divided into one, three, six, nine months, one, two, three years and other specific periods. It is issued by public bidding, and the interest rate is set according to the winning bid rate. At maturity, it will be settled together with principal and interest.

The issue target is limited to the bank that opened the reserve account in the issue. Adopting a nominal name, it can be transferred and endorsed.

(G) Fund

(1) Definition: Raise funds by issuing fund bonds, and invest in financial instruments such as stocks and bonds by setting up trusts.

(2) Features: collective investment, expert financial management, portfolio investment, higher security, higher liquidity, and lower transaction costs.