What's is Capital Market? what is Derivatives? Difference between bond and equity? They ask some basics questions like this.

Question

Accepted Answer

Capital market is a financial market where long-term securities like stocks and bonds are bought and sold. Derivatives are financial instruments derived from an underlying asset.

Capital market is a market for long-term securities like stocks and bonds
It facilitates the buying and selling of financial instruments with long maturities
Derivatives are financial instruments derived from an underlying asset
They derive their value from an underlying asset like stocks, bonds, commodities, or currencies
Examples of derivatives include futures contracts, options, swaps, and forwards
Bonds represent debt instruments issued by governments or corporations
They pay interest to the bondholders and have a fixed maturity date
Equity refers to ownership in a company through shares of stock
Equity holders have ownership rights and can participate in the company's profits and decision-making
Unlike bonds, equity does not have a fixed maturity date and does not pay interest

Accepted Answer

Capital Market:

A capital market is a financial market where companies, governments, and other entities can raise funds by selling securities, such as stocks, bonds, and other financial instruments, to investors. Capital markets are important for economic growth because they provide a way for entities to raise capital for investment, expansion, and other purposes.

Derivatives:

A derivative is a financial instrument whose value is based on an underlying asset, such as a stock, bond, commodity, or currency. Derivatives include options, futures, swaps, and forwards, and they are often used for hedging or speculative purposes. Derivatives are traded on exchanges or over-the-counter markets and can be used to manage risk or generate profits.

Difference between Bond and Equity:

Bonds and equities are two types of securities that can be bought and sold in capital markets, but they are fundamentally different in several ways.

Ownership: When an investor buys a bond, they are essentially lending money to the issuer and becoming a creditor. When an investor buys an equity (such as a stock), they become a part owner of the company.
Returns: Bonds typically provide a fixed rate of return in the form of interest payments, while equities provide returns in the form of capital appreciation and dividends.
Risk: Bonds are generally considered to be less risky than equities because they have a fixed rate of return and a defined maturity date. Equities can be more volatile because their value is subject to market fluctuations and the performance of the underlying company.
Voting Rights: Bondholders typically do not have voting rights in the company, while equity holders have the right to vote on certain company matters, such as electing the board of directors.

In summary, bonds are debt securities that provide a fixed rate of return and are less risky, while equities are ownership securities that provide returns in the form of capital appreciation and dividends and are subject to more market volatility.

What's is Capital Market? what is Derivatives? Difference between bond and equity? They ask some basics questions like this.

Top Capgemini Senior Associate interview questions & answers

Popular interview questions of Senior Associate

Top HR questions asked in Capgemini Senior Associate