Capital Market Instruments 

Capital market instruments are basically either equity (stock) securities or debt (bond)
securities, as far as negotiable securities are concerned.  

Non-negotiable Instruments 

1. Loans 
Companies who need a large amount of funds to finance special needs like
purchase of land or building, plant expansion, or even bond retirement usually resort to
borrowing from institutional lenders like commercial banks. Long time, well-established
companies can really borrow a large amount of funds to finance their capital needs. 

2. Leases 
Arrangements where the owner of the property (lessor) leases/rents the
property out to the user of the property (lessee) for a fixed monthly lease payment.
Companies who want to buy capital equipment or machinery can arrange for a lease-
to-own contract with financial institution.  

3. Mortgages 
Land, building, and machineries are usually mortgaged upon purchase. The
companies borrow money from banks and other lending institutions to buy the land,
building or machinery, and these are used as collateral for the loan obtained.  

4. Letters of Credit 
It is a letter from a bank guaranteeing a buyer’s payment to seller on the
agreed date and for the correct amount. In the event that the buyer is unable to make
payment on the purchase, the bank will be required to cover the full or remaining
amount of the purchase. 

Negotiable Capital Instruments 

1. Corporate Stocks 
This is the largest capital market instrument. Stocks are evidences or
certificates of ownership in a corporation. The holders are called shareholders or
stockholders. The capital stock of a company is divided into shares and each share is
denominated in Philippine currency or the currency of the country where the company
is located. 

Unlike debt instruments, stocks do not have maturity dates. They remain
outstanding as long as the issuing corporation is in business and is not retired or called
in by issuing company.  Stocks are traded by brokers in organized stock exchanges
and over-the-counter (OTC) market.  Any corporation with more than 300 stockholders
may have its stock traded over the counter.  Large corporations meet certain standards
of size and stability may apply to the Securities and Exchange Commission (SEC) for
listing on organized stock exchanges such as Philippine Stock exchange (PSE).
Stocks earn dividends out of earnings in the form of:  

 ∙ Cash dividends  

 ∙ Stock dividends 

 ∙ Stock option 

 ∙ Property dividends