Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Mr. Al Mannaei
Money Market
• Short-term Securities.
• High liquidity.
• Low Interest rate (yield).
• Low Risk.
Capital Market
• Long-term Securities (more than a year).
• Issued by Governments and Corporations.
• Lower liquidity relative to Money Market securities.
• Higher Interest rate (yield) relative to MM Securities.
• Higher Risk relative to MM Securities.
• Negotiable (Tradable).
Capital Market
• Reason for issuance :
– Make or Rise Capital ( ex. Initial Public Offering
IPO )
– Finance long-term projects.
– Issuer : Borrowing for long-term.
– Investor : Investing for long-term
Capital Market
• Buying and selling equity and debt
instruments.
• Major Investors
– Households (directly or indirectly through
financial intermediaries).
– Foreign investors.
U.S. Government Issues and Agency Securities
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2.Treasury Inflation Protection Securities (TIPS).
• What is inflation ?!
• You buy a car for BD 10,000
• Next year your friend buy a similar car for
BD10,500.
• Calculate the inflation rate ?!
• Is high inflation rate good ?!
Treasury Inflation Protection Securities (TIPS).
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3. Separate Trading of Registered Interest and Principal (STRIP).
.
3. Separate Trading of Registered Interest and
Principal (STRIP).
Ministry of
Citizens Housing CBB
Example
• An Investor considering the following bonds,
Tax rate 30%, which bond should investor choose ?
AA AA
Municipal Corporate
4% 6%
Bond AA Municipal AA
Corporate
Pre-tax * 6%
After Tax 4%
* Assumed
Example ( continue )
Bond AA Municipal AA
Corporate
Pre-Tax 6%
After Tax 4%
Example ( continue )
Bond AA Municipal AA
Corporate
Pre-tax 6.67% 6%
After Tax 4% 3.6%
Result : As tax rate increase then municipal will generate higher
after tax yield than taxable securities and vice versa.
Types of ownership record
• Bearer Bonds
– Very old fashion!
– Holder = owner.
• Because name is not documented on the bond.
– Negotiable.
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Types of ownership record
Registered Bonds.
–Name is recorded.
• Serial bonds
– Bonds in the same date of issuance mature on
different dates.
Bonds
Debenture
Indenture s
1.Equipment 1.Senior debt
trust certificates
2.Subordinated
2. Collateral debt
bonds
2.Subordinated debt
Bondholder’s claims to the company’s
assets rank behind the senior debt.
Investors in Corporate Bonds
• Why investor invest in Corporate bonds ?
– Long-term investment horizon.
– Liquidity not always needed - hold to maturity.
– Safety - investment grade. ( low risk )
– Tax considerations.
Investor in Corporate bond
• Major investors include:
– Pension funds ( retirement funds ).
– Life insurance company.
– Foreign Investors.
Primary Market for Corporate Bonds
• Primary Markets
1.Public Sale :
Competitive sale : Sold on public auction market
to underwriter that offer the lowest interest rate.
Kingsoft Office
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