Step–by–Step Introduction to Fixed–Income Investments. A Practical Guide for Postgraduate, Research Students and Investors

Abstract

This book is designed to provide an overview and introduction to the Fixed–income securities industry. A fixed–income security is a debt obligation or a loan in which the issuer of the debt pays a specified amount to the holder of the security in terms of fixed periodic payments known as the coupon. At maturity date the issuer pays back the principal to the holder. During the debt obligation the holder receives regular incomes and reduces the exposure of market risk by monitoring interest rates. Please take into consideration that this is a debt obligation and if the issuer or the company is bankrupted, then the holder will lose the principal or capital invested and the regular payments. In other words, in a default event the issuer fails to pay interest and principal. Another type of risk that the holder is facing is exchange rate fluctuations. Therefore, it is important to invest in a portfolio of bonds according to the country of origin. It is a good idea that the investors’ diversify their capital in different currencies for example, USD, GBP, DKK, SEK, CAD, etc. and invests 50,000 in different bonds portfolio. A diversification of currencies eliminates the appreciation and depreciation of currencies related to other currencies. A debt obligation could be a corporate bond, a government bond a preferred stock that pay dividends, a treasury bills, and a municipal bond. Fixed–income securities such as treasury securities are traded in the secondary market or over-the-counter market through bid/ask quotations. The holders of the fixed–income security are the lenders or creditors while the issuers are known as the borrowers. Fixed–income industry is directly related to short, medium and long- term interest rates. In other words, the industry of the fixed income is related to the monetary policy of each country.