Question

Discuss the bonds types and their sallent features, prevalent in the global financial market?

Answer 1

Bonds are the financial instruments or we can say it is a debt instrument, issued by the governments and corporation for the purpose of raising capital and to finance long term investments. Bonds have a maturity date after it get redeemed.

Bonds are of generally two types-

1. Government Bonds- These are issued by the central bank of the country on behalf of the central or state government. These are also known as a gilt edged securities.

2. Corporate bonds- These bonds are issued by the public companies.

These bonds are further classified into various types such as municipal bonds, corporate bonds, zero coupon bonds, Treasury bonds, foreign bonds, and mortgage backed bonds.

Government bonds provide the borrower to finance current expenditure.

Treasury bonds issued by federal government to finance its budget deficits.

High Yield bonds are issued by the companies with weak balance sheets.

Municipal bonds issued by the U.S. states and local governments.

Zero coupon bonds- zero interest is paid on this bond.

While considering the features of bonds- These include

1. Par value or face value of of the bond.

2. Coupon rate payable to the bondholder.

3. Maturity date and redemption of the bond.