Download Chapter 6; Bond Markets | FINC 435 - Financial Markets/Institutions and more Quizzes Financial Market in PDF only on Docsity! TERM 1 Capital Markets DEFINITION 1 Involves equity (stocks) and debt instruments (notes, bonds, & mortgages) with maturities of more than one year TERM 2 Bonds DEFINITION 2 Long-term debt obligations issued by corporations & government units. Proceeds from a bond issue are used to raise funds to support long-term operations of the issuer (e.g., for capital expenditure projects). In return for the investero's funds, bond issuers promise to pay a specified amount in the future on the maturity of the bond (the face value) plus coupon interest on the borrowed funds (the coupon rate times the face value of the bond). If the terms of the repayment are notmet by the bond issuer, the bond holder (the investor) has a claim on the assets of the bond issuer. TERM 3 Bond Markets DEFINITION 3 Markets in which bonds are issued & traded. They are used to assist in the transfer of funds from individuals, corporations, and government units with excess funds to corporations and government units in need of long-term debt funding. TERM 4 Three Types of Bond Markets DEFINITION 4 1) Treasury notes & bonds 2) Municipal Bonds 3) Corporate Bonds TERM 5 Treasury Notes & Bonds (T-notes & T- bonds) DEFINITION 5 Are issued by the U.S. Treasury to finance the national debt and other government expenditures. TERM 6 The annual federal deficit DEFINITION 6 is equal to annual expenditures (G) less taxes (T) recieved TERM 7 The national debt DEFINITION 7 is the sum of historical annual federal deficits TERM 8 Treasury Notes & Bonds (Default Risk Free) DEFINITION 8 Backed by the full faith and credit of the US government TERM 9 Treasury Notes & Bonds (Low Returns) DEFINITION 9 Low interest rates (yield to maturity) reflect low default risk TERM 10 Treasury Notes & Bonds (Interest Rate Risk) DEFINITION 10 Because of their long maturity, T-notes and T-bonds experience wider price fluctuations than money market securities when interest rates change
