This lesson examines the primary instruments of capital markets—bonds and stocks—and explores the international dimension of debt and equity markets. It covers the characteristics, issuance, and trading of these instruments.

• The Bond Market: The bond market is where long-term debt instruments are traded. Bonds are contracts where the borrower agrees to pay a specified interest (coupon) and repay the principal (face value) at maturity. The bond market includes government bonds (Treasury securities), municipal bonds (issued by state/local governments), and corporate bonds .

• Bond Valuation: The price of a bond is the present value of its expected future cash flows (coupons and principal) discounted at the required rate of return. Bond prices are inversely related to yields. The yield curve—showing yields across maturities—is a key economic indicator .

• The Stock Market: The equity market is where ownership shares (stocks) of corporations are issued and traded. Stocks represent an ownership claim, offering voting rights and residual claims on earnings and assets. Stock markets include major exchanges (NYSE, NASDAQ, Euronext) and OTC markets .

• Types of Stock: Common stock provides ownership rights and residual claims; preferred stock offers fixed dividends and priority over common stock in liquidation but typically lacks voting rights. Stock valuation models include the dividend discount model (DDM) and free cash flow models .

• International Capital Markets: International bond markets include Eurobonds (issued in a currency different from the issuer’s local currency) and foreign bonds (issued in a host country’s currency by a foreign issuer). International equity markets facilitate cross-border capital raising and investment through cross-listings and global depository receipts (GDRs) .