Capital Markets are where financial securities are traded. There are two main types of capital markets: primary markets and secondary markets. Primary markets or new issue markets are where companies obtain funds through debt by issuing securities. These securities are sold and the cash goes straight to the company for operations for expanding purposes. In primary markets, investment banks set the beginning price for the security and then these are sold directly to investors. Secondary Markets have the price of securities defined by actual supply and demand instead of by investment banks. In these markets, investors trade assets between each other, rather than purchasing securities issued directly by a company. Secondary markets are where the majority of the trading occurs every day.
The stock market is the place where investors trade shares of publicly traded companies. These shares fluctuate in price depending on speculations and the performance of the company. As previously mentioned, the stock market can also be divided into the primary and secondary markets.
Bonds are financial instruments issued by companies and organizations to raise capital. A bond consists in a debt investment in which a company borrows money from investors for a defined period of time. Investors lend their money with the purpose of getting it back with interests. Bonds are usually traded in capital markets
Money markets are a segment of the financial market where financial assets with high liquidity are traded. Several of the assets traded are certificates of deposits, banks acceptances, commercial papers, municipal notes, U.S. Treasury bills, repurchase agreements and federal funds. This market is used to borrow and lend assets in short terms of time; assets can be traded within several days or months, just under a year.
Derivatives are financial tools which value is based on one or more underlying assets, such
as stocks or bonds. These are known as a contract between two parties setting conditions
such as dates, values of underlying parts, and notional amounts, under which payments are supposed to be made between both parties. 18 There are many different types of financial derivatives, but the most common ones are: options, a contract signed by two parties to buy or sell a financial security; futures, a contract obligating a party to buy or sell an asset to another party; swaps, an exchange between securities to modify the maturity, quality of issues or investment objectives of financial securities.