Handbuch Treasury / Treasurer's Handbook

S. 272Part II: The Capital Market

The capital market is made up of all relations between investors and capital acquirers. In a strict sense it is a market in which money is provided for periods longer than one year via shares, loans and fixed income instruments such as bonds. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.

The economic importance of the capital market is to provide investors with long-term capital in the form of equity capital or debt capital and to provide creditors with variable (e.g. dividends) or fixed revenue (e.g. interest for debt capital). Trades are made in security markets (organised capital market) or in free (non-organised) capital markets.

The first chapter provides information on the basics of bond trading. First, the bond market and its features are decribed. Then, quotation and pricing as well as their influence factors are explained. Furthermore, this chapter deals with the calculation of price sensibilities and the concept of duration. At the en...