Capital markets are financial markets concerned with raising capital by issuing long term securities. The securities in capital market are issued in primary market and traded in secondary market. The primary market is a market for new shares, where the secondary market is the market where existing securities are traded. The most common type of securities which are traded in capital market is stocks, bonds and mortgages. .
Bonds are long term debt securities that are issued by companies, municipalities and governments in order to finance their capital expenditure. Bond is a form of debt security where the issuer owes the holders a debt; therefore the issuer is obligated to pay the interest. There are both advantages and disadvantages of issuing bonds for example, when someone issues a bond, they tell the bondholder exactly when they can cash in the bond. They also set the rate of interest you will pay, and this makes the repayment of the loans very predictable. And it makes them enable to estimate what the company's financial obligations will be at a specific point. And the disadvantage to this is when a company is struggling or going through a rough financial time it has to pay the bondholders first, because they are creditors. The benefit of investing in bonds would be the priority that debt holders have over shareholders. If a firm goes bankrupt, debt holders are the first to be paid, so it is much safer investment in terms of liability. The risk to investing in bonds would be the interest rate, because bonds and interest rates have an inverse relationship. As interest rates fall, the price of bonds rises, because the higher payouts on the old bonds look more attractive relative to the lower rates offered on newer ones. And when interest rates rises, the price of bonds tend to fall, because new bonds are issued that pay higher coupons. .
Stocks are equity securities that signify partial ownership in the company that issues them.
