BUS614: International Finance

In this section, you will learn about the different financial instruments and the difference between bonds and stocks. Bonds are debt instruments, while stocks are equity instruments. This section also discusses other financial instruments, like derivatives, commodities, and mutual funds.

While you read this page, pay attention to the difference between equity and debt and how and when companies issue either instrument. One of the advantages of holding bonds over stocks is that bondholders have priority in being paid over stockholders. This happens because bondholders are technically loan providers rather than owners, as is the case with stakeholders. From a legal perspective, loan providers are on top of the hierarchy in receiving their rights should the company be liquidated. When would companies prefer issuing bonds rather than stocks? What are three differences between debt instruments and equity instruments?

This section discusses where stocks are traded and the difference between primary and secondary stock markets. You will become familiar with IPOs (initial public offerings), which are essentially when a company issues stock for the first time. IPOs are crucial for understanding the difference between primary and secondary markets. What are the different classes of rights that come from each type of stock?

So far, we've discussed stocks and the difference between stocks and bonds. However, we haven't elaborated on what bonds are and where they are traded. This section discusses bonds and the bond market. While you read, pay attention to how zero-coupon bonds, differed-coupon bonds, and split-coupon bonds differ. You will learn about municipal bonds, which are a way for governments, states, and municipalities to borrow money. Where are corporate bonds and government bonds traded?

This article discusses over-the-counter (OTC) markets and their role within the primary and secondary markets we discussed earlier. OTC markets are not subject to the same regulations as primary markets. OTCs are considered secondary markets, like stock exchanges such as the New York Stock Exchange (NYSE). These two secondary markets differ in that OTCs are decentralized markets, like NASDAQ, while stock exchanges are centralized and allow traders to meet and conduct their trading activities. What are the different financial markets?

This article covers how companies raise money. As we discussed, this can be done by issuing stocks and bonds. Of course, those are not the only ways for a business to raise capital. Another option is borrowing from banks. There is an ongoing debate as to whether traded loans should be considered debt securities or not. For loans to be considered tradable debt instruments, the following criteria need to be considered:

• "Loans which have become negotiable de facto should also be classified under securities other than shares" [1993 SNA (para. 11.75)]
• "Loans that have become marketable in secondary markets should be reclassified under securities other than shares and should be valued on the basis of market prices or fair values in the same manner as other types of securities other than shares" [GFSM 2001 (para. 7.111)].

How do bonds differ from bank loans?

So far, we've discussed primary and secondary markets and the role of issuers and end investors. However, there are more players in these markets, including brokers and investment bankers. What is their role within primary and secondary markets? How does online investing work?

This report expands on the topic of municipal bonds and discusses the different incentives attached to government bonds. These debt instruments are issued by states and government bodies to finance their investments and spending. In doing so, governments become lenders, which allows them to support specific sectors to help stimulate their economies. For example, how have some governments supported businesses during the coronavirus pandemic?