\"Characterization and types
Government securities \"
Developed Gardening: Purple Martin
/full names/
No Faculty 111133220080
Specialty \"Business management\"
IV course 7th semester, academic year 2011/2012
The predecessor of the financial market is the stock market, it appeared even in ancient times, on the basis of the social division of labor and private ownership of the means of production. Individual producers producing certain products through their Exchange they receive other goods, which were vital to them and do not themselves produce - (natural).
The expansion of the production stock led to the emergence of money from there and the emergence of the first financial markets. In the development of relations and carve the borrowed capital and fiktivniât, the role of financial markets radically changed.
Today as a symbol of the monetary and exchange relationship taken trade in currencies and other securities. In a broad sense financial market comprises the purchase and sale of all types of financial assets.
Financial assets are defined as rights over tangible assets or income from them. They are not tangible. They are often in the form of contracts, securities, etc.
The financial market in a particular country is a system of divisional markets traded with various types of financial assets. The main podpazari in the structure of the financial market: the credit market, the monetary market, the market for commercial paper, the market shares, the market for certificates of deposit, and derivatniât market in bonds.
The bond market was first raised in the world market on which the securities are traded. The bond occurs in the financial market well before the RAID to appear. The main economic importance of the bond justify its existence is that it is a means of raising cash. Precisely because of this it can be seen as a special loan agreement.
The bonds are different types and specifics in their essence requires that they be traded independently. Today the market of debt securities held first place by volume of traded bonds. It is traded in State, municipal and corporate bonds. The main actors are the issuers and investors.
Issuers may be the State, municipalities, institutions, banking and non-banking corporations, etc., and investors are all equipped with extra cash and wish to give them in loan issuers under certain conditions.
Bond markets are markets for debt (credit), and bond is security, security, increasingly expresses obligation, debt.
Debt markets are carried out operations with bonds, mortgages, etc. similar tools that are a classic form of credit. The total debt market can be: market for Treasury bills and Government bonds market, market of municipal bonds and corporate bond market. Each bond is a secondary issue and then traded.
The issuance of Government securities in the primary market, which sold issued securities for the first time by a Government or municipality, occupying resources.
Secondary trading on the security is performed on secondary markets-traded securities already issued. Resellers are stock exchanges.
Secondary markets perform two important functions:
1. provide liquidity of securities and thus make them more desirable by lenders;
2. The secondary markets determines the price of the books that the Publisher could get on the primary market.
Issuers are the Ministry of finance, municipalities, public limited liability companies, and investors are all who have a motive to put into such financial instruments, they constitute an agreement that means zaema?iât will pay the holder of the security interest payments at predetermined intervals and after expiry of the specified period will pay the final payment.
I. CHARACTERIZATION OF GOVERNMENT SECURITIES
Government securities are a special type of securities. They are inherently bonds but have distinctive characteristics, ranks them from corporate (corporate) bonds. The most characteristic feature is the quality of the issuer. When the society is issuing bonds trading company (joint stock company or limited partnership with shares) while government securities can be issued only by the State as a legal entity.
Another typical feature is the regulations. It is highly regulatory and in Bulgarian is an individual in respect of the arrangements provided for in the law on public offering of securities.
Government securities are considered to be absolutely risk-free securities, because they are issued and backed by the State, and its inability to meet its obligations under the bond loan (i.e. fail) is theoretically impossible. Government securities are viewed as a safe haven during economic storm because - although the interest thereon is usually low, they allow investors to protect their investment in increasing inflation and turbulences in the financial markets or at least minimize its losses.
It is assumed that operations with government securities for the first time used in the United States in the creation of the Federal Reserve system in 1913, serving as the Central Bank. A role is defined by the fact that in countries with a developed banking system operations with GOVERNMENT SECURITIES have stable markets. These assets are liquid and can be emitted in large volume. This allows to carry out significant transactions without causing excessive in their prices, which would limit their market. The practice shows that the largest issuer of securities - the State, it is also the best on them. So increasing the credibility of the Government securities. Therefore, they are becoming a major source of borrowing money to cover the budget deficit. The market for sovereign debt is one of the largest in the system of the single market for securities. The Governments of both developed and of countries in transition to a market economy, have a permanent need extra amounts of cash to finance the budget deficit, interest on repayments of maturing securities, the cash collateral to the execution of the State budget, support for major institutions and organizations, funding targeted programs, etc. therefore the volume of the market of Government securities is increasing at a high rate. Market-based TREASURY SECURITIES are quoted on the stock exchange and over-the-counter market.
The Bank participates in both the primary and secondary market of securities. She first, issuing new Government securities (bonds and bills s?krovi?eni) and secondly, the buying and selling of securities on the stock exchange. When it buys securities, it expands the monetary base (and the money supply). The Central Bank in this case becomes a creditor of the Government dropping an additional emission of banknotes. Back: in the sale of Government securities monetary base (and money supply) are shrinking. On this basis, it should be borne in mind that:
Government securities are part of government debt and in particular by the internal debt of the country.
Government securities are divided into several groups:
1. GOVERNMENT BONDS issued for the management of the domestic debt, which in turn are divided into:
- Treasury bills - they are short-term GOVERNMENT SECURITIES with a maturity of up to one year.
- t-tickets-or even medium-term GOVERNMENT BONDS have a maturity of 5 years.
- Treasury bonds-their maturity occurs after more than 5 years.
2. Government long-term bonds to cover losses in the financial sector during the structural reformsrelate to them:
-LSUC-bonds
-GOVERNMENT SECURITIES issued under the law for the protection of bank deposits
3. GOVERNMENT SECURITIES issued in connection with the restructuring of external debt or even Brady bonds.
II. TYPES OF GOVERNMENT SECURITIES
Government securities vary depending on the period of time during which the issuance, by the manner in which profitability is formed by them, whether they are issued on the domestic or international markets, from their tax regime and whether they are available or cashless.
1. Government bonds to finance the budget deficit.
Government securities to finance the budget deficit are of three types: Treasury bills (treasury bills), Treasury bills (treasury notes) and Treasury bonds (treasury bonds). The main differences between them are in respect of the period for which shall be issued in respect of methods of determination of profitability.
1.1.according to the period for which issued, Government securities are:
1.1.1. Short-term Treasury bills and Treasury bonds, they are for a period of up to one year, as sro?nostta is primarily in the months and days. Since the introduction of the currency board in Bulgaria remained quarterly and annual Treasury bills.
1.1.2. Medium-term government bonds or Treasury bills. In developed countries, they are due by 1 to 10 years, and at home because of the undeveloped poli?no address, those securities almost no issue.
1.1.3. Long-term Treasury bills and Treasury bonds have a maturity of more than one year in the market developed countries-for example, 3, 5, 10, 20, 25 years, and the country in general government securities with a term greater than one year are called bonds.
1.2.depending on the method of calculation of income differ:
1.2.1. Discount Treasury bills. These include Treasury bills. The most characteristic feature of discount vouchers for the calculation of profitability is that they are sold with a discount (after paying in advance) of the nominal value. On the day of purchase sale price is below the nominal value, and at maturity yields a nominal amount and it follows that in the form of income after paying in advance is equal to the difference between the nominal value and the sale price. The profitability of discount vouchers is not affected by the change in the BIR. That is why these securities are attractive to investors when the expected reduction of the BIR. In the opposite case, investors should focus on interest-bearing GOVERNMENT BONDS.
1.2.2. Skontovo-interest-bearing government securities.They are a hybrid between discount and interest-bearing government securities. On the day of the issue they are selling at a discount from face value, and at maturity is the nominal value plus the interest. So the income is to be determined as well as interest after paying in advance.
1.2.3. Interest-bearing government securities. Such to the introduction of a currency board were both Treasury bills and Treasury bonds, and following the adoption of the Board remained only Treasury bonds. The income from them shall be in the form of interest, calculated in relation to the nominal value. Interest-bearing government bonds have a fixed or floating interest rate.
Interest-bearing government bonds with coupons, which are usually paid every 6 months. Sro?nostta between 2 and 25 years in order to increased emission of securities with longer period.
1.3.according to the currency in which they are issued, Government securities are:
1.3.1. Government securities issued in euro;
1.3.2. Government bonds issued in euros.
Launch of government bonds in the euro is part of the realization of the strategy of the Government to gradually increase the internal debt, at the expense of reduction of the external debt.
The sale of the papers is the auction principle, as a primary dealer could not acquire more than 50% of the sale amount. All companies and citizens wishing to purchase Government bonds from such a feed, you can do so through a primary dealer of their choice.
1.4.State securities issued for structural reform.The most notorious securities issued for structural reform, are the so-called. ZUNK bonds. These are issued under the Act for the settlement of non-performing loans contracted to 31.12.1990 ZUNKbonds are long-term debt instrument issued in 1994. through which the bad loans of State-owned enterprises have been transformed into public debt; ZUNK bonds have a maturity of 25 years and a maturity date of January 1, 2019; ZUNK bonds are interest-bearing debt instrument. From 1 January 1999. the principal of the debt is purchased back. On 1 January of each year in pade?ira 1/20 of the principal; ZUNK bonds are dematerialized and easily transferable securities. Ownership is attested by a certificate; ZUNK bonds are denominated in US dollars and euros. All interest payments and redemption of principal shall be carried out in CZK according to the Bulgarian National Bank (BNB) on the day of payment.
There are three possibilities for investment in the LSUC bonds:
- interest payments (twice a year);
- capital gain
- difference in the exchange rate for US dollar-denominated bonds. ZUNK bonds have a coupon of six months at an interest rate equal to the average six-month USD LIBOR or EURIBOR. Interest payments are due on 1 January and 1 July each year until maturity; ZUNK bonds are trading below par as the prices are depending on the par of the transaction; From 1 July 1997. in the conditions of the currency board our national currency GBP is fixed at DEM and EUR 1 = DEM 1.95583. In this way the movement USD/EUR/GBP exchange rate on USD/EUR on international markets. Redemption
The redemption of the principal on the bonds, the LSUC began in 1999. The Bulgarian Government will buy debt of equal parts or 5% of the face value every year until maturity.
ZUNK bonds are relatively liquid debt instrument.
1.5.GOVERNMENT SECURITIES issued in connection with the restructuring of external debt or even Brady bonds.
Brady bonds (Brady Bonds) are government securities issued by these countries in return for their commitments to commercial and private creditors of the London Club. their name comes from the American Treasury Secretary Nicholas Brady, who first governed Mexico\'s foreign debt in this way in 1990 Bulgarian issued in 1994, the three types of Brady bonds to the total nominal value of 5.1 billion dollars: They are divided into:
- bonds initially reduced interest payments or Front Loaded Interest Reduction Bonds (FLIRBs). A common denomination: 1.658 billion dollars with a face value of 250 thousand dollars each ... release date: 28 July 1994 due date: 28 July 2012: Interest payable semi-annually; starts at 2% a year, as after his eighth year (2002) increases to LIBOR plus 13/16 percent and became a floating. Principal: 21 shall be paid equal half-yearly instalments. payment starting from July 29, 2002.
- discount bonds or Discount Bonds (DISCs) A common denomination: 1.850 billion dollars with a face value of 250 thousand dollars each ... release date: July 28, 1994, the maturity date: 28 July 2010: 2024 Interest payable semi-annually and is floating. Equal is LIBOR plus 13/16 percent. Principal: time shall be paid at maturity. Collateral: interest and principal amounts are secured with government securities of the United States.
- bonds replaced the overdue interest or Interest Arrears Bonds (IABs) a common denomination: 1.611 billion dollars with a face value of 250 thousand dollars each ... release date: July 28, 1994, the maturity date: 28 July 2011. Interest payable: semi-annually and is floating. Equal is LIBOR plus 13/16 percent. Principal: the payment starts after a seven-year grace period is semi-annual payment instalments, on 21 as the first was on July 30, 2001.
Sources:
1. financial markets author Mariana Assenova
2. commercial law
3. the law on public offering of securities
4. the law on markets in financial instruments
5. Bulgarian online magazine theme: the emergence of money author Dimitar Tsenov. ( [login to view URL] )
6. the capital market - (project \"enhancement of knowledge and skills for qualitative and efficient communication in disclosure before State regulators and the investment community\" is realized with the financial support of the operational program \"administrative capacity\", co-financed by the European Union through the European Social Fund).
7. Government securities- Wikipedia, the free encyclopedia
8. ZUNK bonds EUROFINANCE - [login to view URL]
9. types of Government securities and the differences between them- [login to view URL] /
