Investment in the debt market is provided a good return in comparison to
the other sector of the investment and also the liquidity of the debt
market is higher than the other sector.
Why the debt market is more preferred ,because the return on the debt
market is good, liquidity of the return is maximum in comparison to
other investment (In equity or some shares return allocated to the
investors after payment to the debt lender and after all expenses ) .If
there is any Break Even situation when there is no profit or no loss
than the equity or the other share holder not getting any return for
there investment but the debt bond holder will get there interest and
the interest on the debt bound is much higher than the investment on
share or deposit in any banks.
From the owner point of view also the debt bond is good as the interest
on the debt bond is calculated on the profit before tax, and it's
treated as expenses.
Debt bond will not create the problem of ownership change by the more issue of the debt bonds.
Govt. also issue debt bonds in the market to collect the money to
fulfill the gap of Fiscal deficit (Deficit arise when the govt. invest
more amount on the different development project but the revenue arise
from tax or different means is less than the actual expenses)
Goverment Bonds first purchased by the nationalized banks or institution but
in the present situation these bonds are purchased by the general
public also .Govt. debt bonds are more secure return, interest rate on
it is higher than general interest rate prevailing in the market,
investment in the Govt. debt bonds is more secure than the other
investment as this bonds are backing by the Govt.
As per the estimate the total debt bond market is $82.2 trillion US debt bonds are $31.2 trillion.
US is the larges economy in the world and it's also a bigger debtor too.
After the second war influence of the US dollar arise in the whole
world market and the dollar assume as valuable currency and the US Govt.
bonds assume as the secure means of investment .
US dollar used to pay the petroleum to the Middle East courtiers , and
these countries again invest this income to purchase the US security
bonds gold bonds, that means the dollar again return to there home land.
All Asian, Europen and African countries invest there reserve in the US
bonds.
Now the question arises if the US is the largest economy in the world
than why the US Govt. needs to collect funds by issuing the bonds in the
market. US is the big economy but on the other hand US is the only
single larger importer in the world .from the second world war to till
mid 90s the development of the whole world economy depends on the US
export, US import the 1/3 part of the total import of consumer goods,
use of the petroleum products, electricity, consumer durable goods
highest in the US, and for this the US import increases and the US govt.
has only two option first devalue the dollar or second collect the
money by issuing t5he bonds in the open market .First one is dangerous
situation because the devaluation not effect the US only it effect the
whole worlds economy as the US dollar used as the global currency for
the exchange therefore every country maintain the Dollar reserve and the
devaluation reduce the market value of their reserve.
After 90s the scenario change little bit the Middle East countries now
not invest there whole reserve on the US bonds they now invest on the
Euro bonds and the Bonds issued by the Indian and China .European and
other countries import now not depend on the US economy, the emerging
economy in the world China, India, Brazil and Russia now consume the
large part of the world import.
It doesn't mean the US dollar importance totally fade up from world economy but
Yes the US bonds importance reduce in the economic world.
About the author:
Ronand
Smith is a financial post writer written different post for the
financial sites; visit his site to get the different finance related
information.
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