When it comes to finance, reference is commonly made to the term bonds. But very few people know the difference with other corporate titles. In summary, bonds are material forms of debt, fixed income and also variable securities issued by the State, international organization or company. Its main function is to obtain funds directly from the different financial markets.
Generally, bonds are usually placed in the name of the bearer and traded like the shares in the stock exchange. The bond issuer makes a commitment to return the principal capital plus interest. This interest may have a fixed or variable character, based on a benchmark.
As a kind of promises of payment issued by a federal government or State, bondholders are holders of public debt that at no time have any direct relationship with the company. When an investor buys bonds, he is simply lending money to the issuer of them. These securities are issued for a specific period of time as a loan that must be paid at the end of this deadline.
In this context, the bonds can also be sold or acquired by other investors before they expire. The amount of payments made depends on the fixed interest rate established by the issuer of the bond at the time of the sale, which we call the coupon rate. For this reason, bonds are considered the best examples of fixed income instruments.
Some of the factors that influence the bond market are:
The types of bonds that can be found in the financial system are the exchangeable, convertible bond, zero coupon, strips, perpetual debt, cash, junk bonds and state bonds (which are mainly presented in Spain).
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