Page 29 - Introduction To Investment Management

2.2.2 Capital Markets

As we discussed earlier, the money market instruments have a short-term

investment period as compared to capital market instruments, which have a long-term
investment period. Therefore, it relatively exposed to the highest risk, and offers higher

rate of return than money markets.

Respectively, capital markets give a significant contribution to the economic and
industrial development. This is because the existence of long-term funding to enable the

surplus can be transferred to those in need of additional funds. Given below are the
examples of capital market instruments such as bond and share.

A. Bonds

Bonds are long-term debt securities issued either by governments or large
companies in order to obtain funds without making any bank loans or issuing new shares.

Bond offers benefits to those who issuing them because there are no monthly instalment
payments such as bank loans. In addition, it provides the issuer with the external funds to

finance long-term investments for a company and for government, to finance current
expenditure. The bondholders also do not have any right to vote or act as a proxy in an

organisation or a company.

Since the government is refrain from issuing shares (as the government is not a
company), then issuing bonds is one of the alternatives used by the government to obtain

source of long-term fund other than bank loans.

Investors will get the return or fixed interest rate every year for the duration of
bond holdings. Payment of interest on the bonds may be once a year, 2 times a year or

every quarter of the year, depending on the terms stated in the contract. Interest rates

on bonds are known as the coupon rate. The bonds that available in the market today are

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