Understanding Capital Markets

Individuals create assets through production of income and wealth. Thus the owner of any machine hopes to profit from the sale of products from the machine shop and the owner of the factory hopes to earn a return for the goods produced.
Similarly owners of apartments, office buildings, warehouses and other tangible assets hope to earn a stream of future income by using their resources to provide services directly to consumers or to other businesses. These assets are called capital goods. They are the stock of assets used in production. Capital markets are where capital goods are financed with stock or long-term debt instruments or the best forex trading. Compared to money market instruments, capital market instruments are less marketable. Default risk levels vary widely between issuers and have maturities ranging from 5 to 30 years.
Financial institutions are the connecting link between the short-term money markets and the longer-term capital markets. These institutions, especially those that accept deposits typically borrow short-term and then invest in longer-term capital projects either indirectly through business loans or directly into capital market instruments. There are different types of major capital instruments and each of these capital marketing instruments will very any amounts that are outstanding. Such familiar terms as US government securities, treasury notes, treasury bonds, inflation indexed notes and bonds, state and local government bonds, corporate bonds, corporate stock sold at record value and mortgages all comprise the outstanding capital market instruments.
The latest evolution of capital markets is known as derivatives. When these capital market instruments are pulled together the interest paid on the securities are sold as a security or leaked as forex trading tips. That is the reward of an asset is sold as an asset. This works out fine as long as the borrower is making their payments but once they stop on a large scale the game of musical chairs begins and who's ever left holding the derivative is the loser. Understanding capital markets can help you avoid such a risky proposition.