Capital Market Terminologies 1
Important terminologies in Capital Market
Asset-any possession that has value in an exchange.
Tangible reproducible asset such as machinery, or nonreproducible asset such as land, mine or work of art.
Tangible Assets-Value is based on physical properties
Examples include buildings, land, machinery
Intangible asset-represents legal claims to some future benefits.
Examples include various types of financial assets
Types of Financial Assets
Bank loans
Government bonds
Corporate bonds
Municipal bonds
Foreign bond
Common stock
Preferred stock
Foreign stock
Properties of financial assets
1. Moneyness-financial asset act as a medium of exchange or in settlement of transaction.
2. Divisibility and denomination-relates to the minimum size at which a financial asset can be liquidated and exchanged for money.
3. Reversability-refers to the cost of investing in a financial asset and then getting out of it and back into cash again.
4. Term to maturity-the length of the interval until the date when the instrument is scheduled to make the final payment, or the owner is entitled to demand liquidation.
5. Liquidity-
Debt Instruments-Fixed dollar payments
Examples include loans, bonds
Equity Claims-Dollar payment is based on earnings and residual claims
Examples include common stock, partnership share
Types of Investment Risks
Purchasing power risk or inflation risk
Default or credit risk
Exchange rate or currency risk
Money market-a financial market for short tem financial asset.
Capital market- a financial market for longer maturity
Types of Risk
Credit Risk
Regulatory Risk
Interest Rate Risk
Credit risk or default risk-the risk that the issuer or borrower will default on the obligation.
Purchasing power or inflation risk-the risk attached to the potential purchasing power of the cash flow expected.
Demand instruments-instrument for which the creditor can ask for repayment at any time, such as checking accounts and many savings accounts.
Primary market-the market for
Asset-any possession that has value in an exchange.
Tangible reproducible asset such as machinery, or nonreproducible asset such as land, mine or work of art.
Tangible Assets-Value is based on physical properties
Examples include buildings, land, machinery
Intangible asset-represents legal claims to some future benefits.
Examples include various types of financial assets
Types of Financial Assets
Bank loans
Government bonds
Corporate bonds
Municipal bonds
Foreign bond
Common stock
Preferred stock
Foreign stock
Properties of financial assets
1. Moneyness-financial asset act as a medium of exchange or in settlement of transaction.
2. Divisibility and denomination-relates to the minimum size at which a financial asset can be liquidated and exchanged for money.
3. Reversability-refers to the cost of investing in a financial asset and then getting out of it and back into cash again.
4. Term to maturity-the length of the interval until the date when the instrument is scheduled to make the final payment, or the owner is entitled to demand liquidation.
5. Liquidity-
Debt Instruments-Fixed dollar payments
Examples include loans, bonds
Equity Claims-Dollar payment is based on earnings and residual claims
Examples include common stock, partnership share
Types of Investment Risks
Purchasing power risk or inflation risk
Default or credit risk
Exchange rate or currency risk
Money market-a financial market for short tem financial asset.
Capital market- a financial market for longer maturity
Types of Risk
Credit Risk
Regulatory Risk
Interest Rate Risk
Credit risk or default risk-the risk that the issuer or borrower will default on the obligation.
Purchasing power or inflation risk-the risk attached to the potential purchasing power of the cash flow expected.
Demand instruments-instrument for which the creditor can ask for repayment at any time, such as checking accounts and many savings accounts.
Primary market-the market for