The capital market is the sector of the financial market where long-term financial instruments issued by corporations and governments are traded. Here long term refers to financial instrument with original maturity of more than one year and permanent securities. There are two types of capital market securities, those that represent shares of ownership interest, those that are issued by corporations, also known as equity, and those that represent indebtedness. All of these corporations are issued by US, state, and local governments.

Earlier we have described the difference between equity and debt instruments. Equity includes common stock and preferred stock. Because common stock represents ownership of a corporation. Because a corporation has a perpetual life, common stock is a perpetual security, it has no maturity. Preferred stock also represents an ownership interest in a corporation and can either have a redemption date or be perpetual.

A capital market debt obligation is a financial instrument whereby the borrower promises to repay the maturity value within a specified period beyond one year. We can divide these debt obligations into two types namely bank loans and debt securities. Bank loans were once not considered capital market instruments, but today there is a market for trading these loan obligations. One type of such bank loan is syndicated bank loan. It is a loan in which a group of banks provide funds to the borrower. The need for a group of banks arises because the credit risk and the amount demanded by the borrower may be too great for any one bank.

Debt securities include bonds, notes, medium term notes and asset backed securities. The difference between a bond and a note relates to the number of years until the obligation is fulfilled after the issuer issues the original security. Historically a note has been a debt security with a maturity at issuance of 10 years or less. A bond is a debt security with a maturity of more than 10 years.

The difference between a note and a medium term note has nothing to do with maturity, rather it has to do with the manner in which the security is issued. Throughout this article a bond, note or medium term note is referred to simply as a bond. We will refer to investors in any debt obligation as debt holders, bondholders, borrowers or noteholders.

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