The paper "Benefits of Covered Bonds over Unsecured Bonds" is a perfect example of a finance and accounting essay. A bond can be defined as debt security in the market similar to other securities like I. O.U and other securities. Whenever investors purchase a bond, it lends money to the government, a corporation, a municipal or federal agency that is well known to the issuer. Bonds that are issued by corporations are taxable while once which federal government or municipal issues are exempted from tax (Kidwel and Johns 2010). A bond consists of the following components; Bondholder Principal amount The interest rate that is paid to the issuer annually Date of maturity Shares Shares are a type of equity security.
The owner of the share owns one part of the capital of the company that has issued him or her with the shares. The shares give shareholders the right to take part in the decision-making process of the company and it depends on the type of shares one owns in the company (Kidwel and Johns 2010). If the company earns profit, the shareholders will earn dividends depending on the number of dividends declared by the company directors. 2.0Types of Bonds Bonds can be classified in different ways they include; Government bonds: The government to raise more money to finance its projects using fixed security incomes.
They include Notes, bills and treasury bills. Municipal bonds: are issued by municipals to raise more funds internally to fund their project. They are more secured compared to corporates bonds but less lucrative compared to government bonds. They take long before they mature. Corporate bonds: These are bonds issued by companies, in the same manner, they issue shares. The corporate bonds are maturing faster compared with both the municipal and government bonds.
Corporate bonds are subjected to tax whereas municipal and government bonds are not. They are less secured compared with municipal and government bonds (Kidwel and Johns 2010). Another classification of bonds is covered and unsecured bonds. Covered bonds are secured debt instruments and are normally issued by credit institutions either as part of a single issuance and sometimes as a program by the financial institutions (ECB, 2008).
European Central Bank (2008), Covered bonds in the EU financial system, http://www.ecb.int/pub/pdf/other/ coverbondsintheeufinancialsystem200812en_en.pdf
European Covered Bond Council (2012), ECBC Fact Book 2012, http://ecbc.hypo.org/Content/default. asp?PageID=501
European Covered Bond Council (2013), “About Covered Bonds”, http://ecbc.hypo.org/Content/Default. asp?PageID=311
European Systemic Risk Board (2013) Recommendation of the ESRB of 20 December 2012 on funding of credit institutions, http://www.esrb.europa.eu/pub/pdf/ recommendations/2012/ESRB_2012_2_annex.en.pdf?c2 f41dbbc364c483fe2d8e35adef0489
Kidwel N. and Johns K (2010) Financial Markets, Institutions and Money
PriceWaterhouseCoopers (2012), Uncovering covered bonds, http://www.pwc.com/en_GX/gx/banking-capital-markets/ assets/pwc-uncovering-covered-bonds.pdf
Reserve Bank of Australia 2013) Bulletin, Vol. 76, No. 2, June 2013 Business journal