bonds-debentures

7/25/2019 bonds-debentures

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BONDS

Bond is simply a loan given to a company or a government by an

investor. It is a debt investment in which an investor loans money to an

entity which borrows the funds for a dened period of time at a variable

or xed interest rate. Bonds are used by companies to raise money andnance a variety of proects and activities.

!ypes Of Bond

Secured Bond

Such bonds attach the guarantee of xed assets to the value of the bond.

!his gives the investor a guarantee that if the issuing organi"ation defaults in

the payment of principal and interest when they are due the property

attached as a guarantee could be ta#en over by the bondholder.

$allable Bond% a type of bond that allows the issuer of the bond to retain the

privilege of redeeming the bond at some point before the bond reaches its

date of maturity.

$onvertible Bond

% a type of bond that the holder can convert into a specied number of

shares of common stoc# in the issuing company or cash of e&ual value.

D'B'N!()'S

* debenture is a type of debt instrument that is not secured by

physical assets or collateral. Debentures are bac#ed only by the general

creditworthiness and reputation of the issuer. Debentures are issued usually

by large+ nancially strong companies with excellent bond ratings.

!reasury Bills

!reasury bills+ also #nown as ,!%bills+, are a security issued by the (.S.

government. -hen you buy one+ you are essentially lending money to thegovernment. ere+ the term security means any medium used for

investment+ such as bills+ stoc#s or bonds.

!reasury bills have a face value of a certain amount+ which is what they are

actually worth. But they are sold for less. /or example+ a bill may be worth

012+222+ but you would buy it for 03+422. 'very bill has a specied maturity

date+ which is when you receive money bac#. !he government then pays you


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the full price of the bill %% in this case 012+222 %% and you earn 0522 from your

investment. !he amount that you earn is considered interest+ or your

payment for the loan of your money. !he di6erence between the value of the

bill and the amount you pay for it is called the discount rate+ and is set as a

percentage. In the example above+ the discount rate is 5 percent+ because

0522 is 5 percent of 012+222. !reasury bills are one of the safest forms ofinvestment in the world because they are bac#ed by the (.S. government.

!hey are considered ris#%free. !hey are also used by many other

governments throughout the world.

*lthough their yield is lower than on other securities with similar maturities+

!%bills are very popular with institutional investors because+ being bac#ed by

the government7s full faith and credit+ they come closest to a ris# free

investment.

!here are three tenors of !reasury Bills8 91: 31 day 9;: 1anagement Bills 9e.g. =?%day+ 5;%day:.

/orex

!he foreign exchange mar#et plays a crucial role in global trade. Institutionssuch as ban#s can buy and sell currencies li#e the euro or the yuan. *s a

result+ international trading and investments run smoothly.

/acts

!he mar#et is di6erent from other exchanges in that it has no central

location. Instead+ it consists of traders who buy and sell currencies from their

computers. /unction !he main purpose of the foreign exchange mar#et is to

encourage international investment and trade. !his mar#et exchanges one

currency into another currency. /or example+ when 'uropean countries

exports products and services to the (nited States+ the (.S. can pay forthese items in euros+ rather than dollars.

Benets

(nli#e other mar#ets+ such as commodities+ the foreign exchange mar#et is

highly li&uid+ meaning assets can be &uic#ly converted into cash. !raders can

execute trades ;5 hours per day+ except on the wee#ends.


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!ypes !he foreign exchange mar#et is one of the largest global mar#ets.

Some of the players that trade in this mar#et are central ban#s+ speculators

and corporations. Individuals+ #nown as retail traders+ ma#e up a small part

of this mar#et. !hey cannot trade directly+ but can conduct this tas# through

a bro#er or ban#.

$onsiderations

!he foreign exchange mar#et is bro#en down into levels when it comes to

accessing prices. Not all traders will see the same price. !he inter%ban#s+

which are very large investment ban#ing rms+ have the best access to

prices because they trade in very large volumes. *s a result+ they have

access to the best spreads. !he spread is the di6erence between the bid and

the as# price.

!he forex mar#et is the most li&uid mar#et in the world now and accounted

for almost 05 trillion as daily turnover in ;212./actors In@uencing /orex >ar#et8 !he changes in the forex mar#et are a

cumulative e6ect of economic factors+ political conditions and mar#et

psychology.

'conomic factors 8 !he economic policies+ balance of trade as well as

in@ation and growth rates of an economy in@uence the exchange rate of a

currency. *n economyAs productivity also in@uences its exchange rates

positively.

olitical conditions 8 olitical stability is one of the #ey factors operating

behind forex mar#et @uctuations. *lso events in one country may a6ect theexchange rate of neighboring countryAs currency.

>ar#et psychology8 /orex mar#ets are highly responsive to expectations and

mar#et perceptions. !he participants often rely their decisions on long term

trends of economic indicators.

$urrencies !raded8 !he most traded currencies in the forex mar#et are8

1. (.S Dollar 9(SD:

;. British ound Sterling 9CB:

=. 'uro 9'():

5. $anadian Dollar 9$*N:

?. *ustralian Dollar 9*(D:

4. Swiss /ranc 9$/:

. New Eealand dollar 9NED:


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Secondary >ar#et has an important role to play behind the developments of

an eJcient capital mar#et. Secondary mar#et connects investorsA favoritism

for li&uidity with the capital usersA wish of using their capital for a longer

period. /or example + in a traditional partnership+ a partner can not access

the other partnerAs investment but only his or her investment in that

partnership+ even on an emergency basis. !hen he or she can brea# theownership of e&uity into parts and sell his or her respective proportion to

another investor. !his #ind of trading is facilitated only by the secondary

mar#et.

!he secondary bond mar#et trend gives idea about the mar#et li&uidity of a

particular bond. !he investor can either hold the bond for a long period of

time or sell it after a short period of time.

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