BONDS PROFESSIONAL ENGLISH IN USE FOR FINANCE

 

PROFESSIONAL ENGLISH IN USE FOR FINANCE 33. BONDS

 

A Government and corporate bonds Bonds are loans to local and national governments and to large companies. The holders of bonds generally receive fixed interest payments, once or twice a year, and get their money – known as the principal – back on given maturity date. This is the date when the loan ends. Governments issue bonds to raise money and they are considered to be a risk-free investment. In Britain governments bonds are known as gilt-edged stock or just gilts. In the US they are called Treasury notes, which have a maturity of 2-10 years, and Treasury bonds, B Prices and yields Bonds are traded by banks which act as market makers for their customers, quoting bid and offer prices with a very small spread or difference between them. The price of bonds varies inversely with interest rates. This means that if interest rates rise, so C Other types of bonds When interest rates are high, some companies issue convertible shares or convertibles, which are bonds that the owner can later change into shares. Convertibles pay lower interest rates than ordinary bonds, because the buyer gets the chance of making a profit with the convertible option.   EXERCISES 33.1 Match the words in the box with the definitions below. Look at A and B opposite to help you. coupon gilt-edged stock insolvent principal Treasury notes credit rating default maturity date Treasury bonds yield   1 the amount of capital making up a loan 2 an estimation of a burrower’s solvency or ability to pay debts 3 bonds issued by the British government 33.2 Are the following statements true or false? Find reasons for your answers in A, B and C opposite. 1 Bonds are repaid at 100% when they mature, unless the borrower is insolvent. 2 Bondholders are guaranteed to get all their money back if a company goes bankrupt. 3 AAA bonds are a very safe investment. 33.3 Answer the questions. Look at A, B and C opposite to help you. 1 Which is the safest for an investor? a a corporate bond b a junk bond c a government bond 2 Which is the cheapest way for a company to raise money? a a bank loan b an ordinary bond c a convertible

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