Bonds

Bonds
Companies finance most of their activities by way of internally generated cash flows. If they need more money they can either sell shares or borrow usually by issuing bonds. More and more companies now issue their own bonds rather than borrow from banks because this is often cheaper: the market may be a better judge of the firm’s creditworthiness then a bank, i.e. it may lend money at a lower interest rate. This is evidently not a good thing for the banks, which now have to lend large amounts of money to borrowers that are much less secure than blue chip companies.
Bond-issuing companies are rated but private ratings companies such as Moody’s and Standard & Poor’s, and given an “investment grade” according to their financial situation and performance, Aaa being the best and C the worst, i.e. nearly bankrupt. Obviously, the higher the rating, the lower the interest rate at which a company can borrow.
Most bonds are bearer certificates, so after being issued (on the primary market), they can be traded on the secondary bond market until they mature. Bonds are therefore liquid, although of course their price on the secondary market fluctuates according to changes in interest rates. Consequently, the majority of bonds on the secondary market are traded either above or bellow par. A bond’s yield at any particular time is thus it’s coupon (the amount of interest it pays) expressed as a percentage of it’s price on the secondary market.
For companies the advantage of debt financing over equity financing is that bond interest is tax deductible. In other words, the company deducts its interest payments from its profit before paying tax, whereas dividends are paid out of already-taxed profits. Apart from this “tax shield”, it is generally considered to be a signed of good health and anticipated higher future profits if a company borrows. On the other hand increasing debt increases financial risks: bond interest has to be paid, even in a year without any profits from which to deduct it, and the principle has to be repaid when the debt matures, whereas companies are not obliged to pay dividends or repay share capital. Thus companies have a debt-equity ratio that is determined by balancing tax savings against the risk of being declared bankrupt by creditors.
Governments, of course, unlike companies, do not have the option of issuing equities. Consequently the issue bonds when public spending exceeds receipts from income tax, VAT, and so on. Long term government taxes are known as gilt-edged securities, or simply gilts, in Britain, and Treasure Bonds in the US. The British and American central banks also sell a buy short term (free months) Treasury Bills as a way of regulating money supply. To reduce the money supply, they sell these bills to commercial banks, and withdraw the cash received from circulation; to increase the money supply they buy them back, paying with newly created money which is put into circulation in this way.



Translation ( Romanian)


Obligatiunile
Companiile finanteaza majoritatea activitatilor prin modalitatea fluxurilor financiare generate intern.Daca au nevoie de mai multi bani acestea pot sa-si vinda actiunile sau sa imprumute, de obicei prin generare de obligatiuni. Din ce in ce mai multe companii emit propriile obligatiuni decit sa le imprumute de la banca, deoarece aceasta metoda este mult mai eftina: piata poate fi un judecator mai bun al bonitatii decit o banca, adica ar putea imprumuta bani pentru o rata a dobinzii mai mica. Evident ca acesta nu este un lucru bun pentru banci, care acum trebuie sa dea cu impumut sume mari de bani debitorilor, acestea fiind mai putin stabili decit companiiile care emit hirtii de valoare cu un grad sporit de risc. Companiile emitatoare de obligatiuni sunt evaluate de companii private de evaluare( rating) precum Moody’s si Standard & Poors, si acordind o „nota investitionala” in concordanta cu situatia financiara si performante, Aaa fiind cel mai bun, si C cel mai rau, aceasta fiind aproape falit. Evident la o evaluare cit mai inalta , o companie poate imprumuta la o rata a dobinzii mai mica. Majoritatea obligatiunilor sunt purtatoare de certificate, deci dupa emiterea lor( pe piata initiala) ele pot fi schimbate pe piata secundara, inainte de a atinge maturitatea. Obligatiunile sunt asadar lichide, chiar daca pretul lor pe piata secundara variaza in concordanta cu schimbarea ratei dobinzii. In consecinta, majoritatea obligatiunilor pe piata secundara, sunt comercializate fie deasupra sau sub egalitatea schimbului. Astfel venitul obligatiunilor la un anumit timp este astfel cuponul sau ( cantitatea de dobinda platita), exprimata in procentajul pretului pe piata secundara. Pentru companie avantajele finantarii datorii asupra finantarii prin actiuni, este ca rata obligatiunilor este scutita de taxe. Cu alte cuvinte, o companie deduce plata dobinzii din profiturile lor, inaintea platirii taxei, avind in vedere ca dividentele sunt platite din profiturile deja taxate. In afara acestui „ scut de taxe” , este in general considerat a fi un semn de buna performanta si profituri mari anticipate in cazul in care o companie imprumuta . Pe de alta parte cresterea datoriilor generale creste riscurile financiare: dobinda obligatiunii trebuie sa fie platita, chiar si intr-un an fara profit din se poate deduce, si principalul trebuie trebuie sa fie platit, cind datoria ajunge la limita, in asa fel companiile nu sunt obligate sa plateasca dividentele sau sa plateasca capitalul impartit. Astfel companiile au o rata a actiunilor obligatoare, acestea fiind determinate de echilibrarea bugetului de stat impotriva riscului de a fi numiti falitide catre creditor.
Guvernele de sigur, spre deosebire de companii, nu au optiunea de a emite capitaluri proprii. In consecinta ei emit obligatiuni cind cheltuelile publice sunt mai mari decit incasarile de la taxa pe venit, TVA, si asa mai departe. Obligatiunile guvernamentale pe timp indelungat sunt cunoscute ca titluti de valoare „ gilt-edget”, sau mai pe scurt hirtii de valoare in Anglia, si obligatiuni de stat in SUA. Bancile centrale Americane si Britanice de asemenea vind si cumpara certificate de trezorariede scrta durata( trei luni), acestea fiind o modalitate rugulatorie a masei monetare pentru a reduce masa monetara, ei vind aceste certificate catre bancile comerciale si retreag numeralul obtinut din circulatie, pentru a creste masa monetara ei le cumpara inapoi, platind cu noi bani creati, in acest fel acestia fiind pusi in circulatie.
posted by Rusulschi Ecaterina, Sorocovici Cristina