Capital Markets are markets for which instruments?

• A. Debt instruments with original maturities greater than one year and equity instruments
• B. Short-term cash deposits
• C. Foreign currencies only
• D. Derivatives only

Answer: (A)

Capital markets are where long-term funding is raised and traded, focusing on securities with maturities beyond one year. This includes debt instruments that originally mature after more than one year and equity instruments like stocks. Short-term cash deposits and other money-market instruments handle horizons of one year or less, so they belong to the money market rather than the capital market. Foreign currencies are traded in the foreign exchange market, not in the capital markets, and while derivatives are traded broadly, the defining capital-market instruments are long-term debt and equity. Therefore, the statement describing debt instruments with maturities greater than one year along with equity instruments best captures what capital markets are.