What is traded on an Emerging and Secondary Market?

- a negotiable debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of one year or less. (Exempt from state and local taxes, also called T-Bill or U.S. Treasury Bill or Treasury Bill.) Or,
- Paper currency or just an invoice of charges for products and services. For the emerging market it is any bill that can be traded.

A bond is a debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity).

The Federal government, states, cities, corporations, and many other types of institutions sell bonds.

Some bonds do not pay interest, but all bonds require a repayment of principal.

When an investor buys a bond, he becomes a creditor of the issuer. However, the buyer does not gain any kind of ownership rights to the issuer, unlike in the case of equities. However, a bondholder has a greater claim on an issuer's income than a shareholder in the case of financial distress (this is true for all creditors).

Bonds are often divided into different categories based on

-          tax status

-          credit quality

-          issuer type

-          maturity

-          secured/unsecured status

U.S. Treasury bonds are generally considered the safest unsecured bonds, since the possibility of the Treasury defaulting on payments is almost zero.

The yield from a bond is made up of three components

-          coupon interest

-          capital gains and

-          interest on interest

-          (if a bond pays no coupon interest, the only yield will be capital gains).

A bond might be sold at above or below par (the amount paid out at maturity), but the market price will approach par value as the bond approaches maturity.

A riskier bond has to provide a higher payout to compensate for that additional risk.

Brady bonds arose from an effort in the 1980s to reduce the debt held by less-developed countries that were frequently defaulting on loans. They were set up in association with the IMF and World Bank.

Brady bonds are issued by emerging countries under a debt-reduction plan named after former U.S. Secretary of the Treasury Nicholas Brady.

It is an U.S. dollar-denominated bond issued by an emerging market, particularly those in Latin America, and collateralized by U.S. Treasury zero-coupon bonds. This automatically means repayment of principal is insured.

The Brady bonds themselves are coupon-bearing bonds with a variety of rate options (fixed, variable, step, etc.) with maturities of between 10 and 30 years.

Issued at par or at a discount, Brady bonds often included warrants for raw materials available in the country of origin or other options.

A Certificate of Deposit is a short- or medium-term, interest-bearing, FDIC-insured debt instrument offered by banks and savings and loans.

CDs offer higher rates of return than most comparable investments, in exchange for tying up invested money for the duration of the certificate's maturity.

Money removed before maturity is subject to a penalty.

CDs are low risk, low return investments, and are also known as "time deposits", because the account holder has agreed to keep the money in the account for a specified amount of time, anywhere from three months to six years.

A note is a short-term debt security, usually with maturity of five years or less.

A note can also be a legal document that obligates a borrower to repay a mortgage loan at a specified interest rate during a specified period of time or on demand. (Also called a promissory note.)

Guaranteed Investment Contract is a debt instrument issued by an insurance company, usually in a large denomination, and often bought for retirement plans.

The interest rate paid is guaranteed, but the principal is not. (Also called a guaranteed interest contract.)

A commercial paper is an unsecured obligation issued by a corporation or bank to finance its short-term credit needs, such as accounts receivable and inventory.

Maturities typically range from 2 to 270 days.

Commercial paper is available in a wide range of denominations.

They can be either discounted or interest bearing, and usually have a limited or nonexistent secondary market.

A banker’s acceptance is a short-term credit investment which is created by a non-financial firm and whose payment is guaranteed by a bank.

A banker’s acceptance is often used in importing and exporting, and as a money market fund investment.