Question

Q2-Bonds plays an important role in the financial market in the current scenario. A bond is a fixed income instrument that represents a loan made by an investor to a borrower. A bond is between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer. Bond details include the end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments made by the borrower. It is also an indirect source for the any company. As an investor of bond market, can you write a brief note of bond market. Identify the obstacles faced by the investor and give suggestions to overcome (five suggestions) in the bond market to improve smooth transaction.

(write up to 200 word)

Answer 1

Bond Markets are an important source of finance for companies apart from ordinary equity. Bond Markets are ever growing across the world. In many countries, like India, Governments are taking efforts to further deepening the bond market. Bond markets are also known as Credit markets. Bond markets provides a long term finance for companies. Bonds are issued by both public as well as private companies. Investors Invest in Bond Markets to earn a fixed source of Income. Interest on bond market is fixed in nature. Bonds are secured and some countries Unsecured Bonds are also issued. Some of the problems faced by bond investors are as follows:

1) In many countries, Bond markets are shallow. These pose a risk of inaccurate valuation. Governments in those countries should take measures to further deepen the bond markets.

2) In some countries, the bond markets face low liquidity, due to low liquidity, many investors find it difficult to exit the markets at the time most suitable to them or when they want to liquidate their holdings. To increase the liquidity in Bond markets, the governments should involve the central banks, public sector banks, corporate sector, MSME and other significant players in the bond market.

3) In many countries, the problem of credit ratings is an issue. Governments in those countries should develop a strong credit rating mechanism.. When credit rating mechanism is strong, Big Investors find it comfortable to Invest in Bond Markets.

4) In many countries, the quality of collateral is also an issue. Bond Investors do not feel confident about the quality of collaterals offered as security while issuing the bonds.

5) In many countries, the rights of Bondholders are either not properly defined or they are not well protected. In many countries, the bond holders find it difficult to recover their amounts through court proceedings. In many developing countries, the court proceedings are very cumbersome. The governments in those countries should smoothen the court proceedings to make it easy for bondholders to recover their dues well in time.