Financial Markets and Risk Essay Example | Topics and Well Written Essays - 1000 words - 6

Financial Markets and Risk - Essay Example The major sources of long term finance in the capital markets are actually the products provided to the consumer for long term investment. The consumers are assumed to be rational in their choices among the various alternatives presented. The choice of the product to use will depend on: time element, a cost of finance, flexibility and the mode of payment. Long-term investment products provide funds that may be used usually for more than five years. They include: Share capital - this consists of both ordinary share capital which is contributed by the real owners of a limited company and it is not redeemable and the preference share capital. This is contributed by the preference shareholders. Retained earnings provisions - these are part of the profits which belong to the ordinary shareholders and are not paid to them in the period they are earned. Debentures or long-term loans - a debenture is the written acknowledgment of a debt incurred by a limited company. Mortgages - the consumers and companies can get loans for long periods by mortgaging their assets with any mortgage brokers or any other financial institution. Sale and lease back - a company which owns its own premises or fixed assets can obtain finance by selling the property to an insurance company for immediate cash and renting it back. The cost of finance or the product depends on the terms of finance, nature and size of the business, availability of the product, the nature of security, growth stage of the company and government influences through the central bank.