A capital market is money market that makes money available for investment. This is done by the buying and selling of securities. It is a platform where a willing buyer meets a willing seller. They exchange money for securities. The securities traded can be bonds, shares and government securities. Capital markets advisors are useful for individuals and government. If the government is in short of finance, it is allowed by the law to sell securities to the public. Government securities payable first before any expense of the government on maturity. Only the rich and those with vast financial knowledge invest in the capital market. Capital market advisors help people to understand the nature and the guide to making the investment successful. This is how to invest in the capital market.
Consider the free risk security return
The return of a security is the amount of interest rate that the seller expects from the security. The amount of return is called the internal rate return. Before you decide the amount of return on investment, consider the free risk security return. The risk-free return is the return that the government pays interest for the security it sells. The government’s bond return is not subjected to any tax. It is not affected by adverse economic conditions. The government is obligated to pay the interest and the principal on maturity regardless of the economic condition. In case a country is at war, the government security has to be paid by a foreign loan. This rate is important to an investor. It helps the investor determine the minimum amount of return to expect. The rate is normally low than the other type of bond. On top of the risk-free rate, add at least 4 % to determine the return on a risky investment.
Consider the amount of initial outlay
The initial outlay is the amount of capital that an investor is willing to invest in the venture. The nature of this investment is a high-risk high-return investment. This means that the investor requires a high expected rate of return on the investment. The investor must be willing to invest in a risky environment. The risk is regarding adverse economic conditions. The adverse economic condition is caused by inflation, civil war, adverse government taxation policies and mismanagement of funds. The amount of the initial outlay will depend on the investor attitude towards risk. If the investor is risk averse, the amount of the initial outlay will be high. On the other side, if the investor is risk verse the amount of initial outlay will be low.
Take advantage of possible hedging opportunities
Hedging is the reduction of risk in the future. Hedging gives one the authority to buy to executing a right in a future date at the current prevailing prices. It helps on eliminate the risk of inflation and adverse climate condition. In simple terms, hedging helps an investor set the prices of bond and securities at the current market prices, but the exchange will be done in future. It is commonly done where an investment involves two difference currencies