Week 5 Lecture - Week 5. Bond Markets 1203AFE Money,...

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Week 5. Bond Markets 1203AFE Money, Banking and Finance Chapter 8 Monday 25 August 2008
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Objectives Role and function of capital markets Commonwealth Government Securities, their issue and liquidity Types of corporate bonds and hybrid debt Purpose of financial guarantees Securitisation Offshore bond issuance Regulation of the bond market.
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Long Term Debt Securities Money market securities are used to finance short term projects. Firms like to match the expected life of an asset with the maturity of the debt. The capital markets allow firms and governments to issue long term debt securities.
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Capital Market Participants The largest issuers are the Commonwealth and state governments and corporations. The largest purchasers of capital market securities are individuals and households.
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Capital Market Securities
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Turnover on the Capital Markets
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Commonwealth Government Securities Treasury notes Discount securities Maturity of less than one year Treasury bonds Pay coupon Default risk free Long term to maturity Sold by tender by RBA through AOFM
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Treasury Indexed Bonds In addition to fixed rate bonds, the Commonwealth also issues bonds whose coupons adjust with inflation. Treasury indexed bonds pay interest quarterly The principal amount on which the coupons are based changes with inflation. Unfortunately, issuance of these bonds has been suspended.
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The state governments of Australia issue bonds called semis to finance expenditure. These are issued by state financial
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Week 5 Lecture - Week 5. Bond Markets 1203AFE Money,...

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