Equity Market
Equity capital market exists between financial institutions and companies to raise funds by selling equity to investors’. Stocks are the primary instrument for investors to buy and sell. However, there are other devices which will enable investors to do trades to make the profit.
Different types of tools available to investors are:
· Stocks: This is of two kinds; common stocks and preferred stocks. This instrument will help firms to raise capital to stay in business and generate profit. Investors who buy this tool have the right to receive a monthly amount called dividend.
· Convertible Debenture: another type of equity instrument which is somehow similar to bonds, but gives the investors the right to be converted to common stocks.
· Preferred stock: this kind of device gives the investor the right to act as one of the owners of the business. Moreover, investors who buy this instrument are before those with common stocks in receiving the dividend.
· Depository receipt: another type of device which will give rights to reference common bonds, ordinary debentures, and convertible debentures
· Transferable Subscription Rights (TSR): Investors will invest in these instruments via equity market to generate profit when a company does make the profit.
Debt Market
In this market, business owners and project sponsors have the chance to raise capital from banks, Financial Institutions or passive/active individual investors. For receiving the debt, clients will be obligated to return the money based on the time frame agreed by the two parties and the extra amount on top of the initial amount which is called interest.
There are different types of debt capital market that we will mention the most important ones:
· Bank loans
A loan is the most common form of loan capital for business. A loan provides medium or long-range finance. Banks set the fixed period over which the loan provided, the rate of interest and the timing and amount of repayments.
· Life insurance
This type of insurance is a protection against financial loss that would result from the premature death of an insured. The named beneficiary receives the proceeds and thereby safeguarded from the economic impact of the passing of the warranted. A life insurer pays the death benefit in consideration for premium payments made by the insured.
· Bonds
A bond is a debt protection, similar to an IOU. The issue of bonds does raise capital from investors prepared to lend their funds for an extended period.
· Foreign International Banks
Who is eligible to apply for international student loans? Students who are not U.S. Citizens or non-citizen permanent residents and who are attending an eligible U.S. College or University. Borrowers are required to have a credit-worthy cosigner who is a U.S. Citizen or a non-citizen permanent resident.
· World Bank
The World Bank is a universal financial institution that provides loans to countries in the world for capital programs. It comprises two organizations: The International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA).
· Line of Credits
A line of credit, shortened as LOC, is a settlement between a financial institution, usually a bank, and a client that establishes a maximum loan balance that the lender permits the borrower to access or maintain.
· Credit Cards
A credit card which issued by a financial company giving the holder an option to borrow funds, usually at the point of sale. This card charges interest and primarily used for short-term financing.
· Pension Funds
A pension plan is a retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker's future benefit. The pool of funds invested on the employee's behalf and the earnings on the investments generates income to the worker upon retirement.
· Passive Investors
Passive investing is an investment approach that strives to maximize returns over the long run by keeping the amount of buying and exchanging to a minimum. The idea is to avoid the fees and the drag on performance that potentially occur from frequent trading.
· Supplier Credits
It is an arrangement to buy goods or services for the account which the buyer will externally make immediate cash payment. For many companies, trade credit is an essential tool for financing growth. Trade credit is the credit extended to you by suppliers who let you buy now and pay later.
Mezzanine Financing
This capital source comprised of both Equity and Debt. It gives a lender an option to convert debt to ownership or equity in case of default. An individual or company to be able to access such capital, a company must have a traditional product or present a historical track record of profitability. An interest rate of this fund, usually higher than debt capital. This kind of financing has an advantage of focussing tax digestibility for the borrower.
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