Fixed Interest Securities

Question 1

What are they

Answer 1

Debt instruments

Long term investments

Pay fixed interest rate annual (coupon - don’t vary with external factors)

Co issuers (borrower)

Investor acquires (lender)

Question 2

What is a coupon

Answer 2

Fixed interest rate (same from outset) based on notional amount

Known from outset (time at purchase)

Paid regular intervals (semi annually)

Ie - 6% on 100,000 NA = £6000 interest

Question 3

What are the main groups of FIS

Answer 3

Gov bonds

• domestic or overseas
• gov finance in deficit so need additional source of finance

Corp bonds
-issued by Co’s to raise finance

Eurobonds
-issued and traded outside the jurisdiction of the country whose currency bond is denominated

Question 4

How to companies raise capital

Answer 4

Share issues

MMIs

Bank borrowing

Corp bonds