U.S. Government Securities

2021-05-10 22:35:45
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U.S. Government Securities refers to the bond of financial debt obligation which are issued by the U.S. Government with different schedules as well as maturities. U.S. Government Securities are regarded as creditworthy of all financial debt instruments due the fact that they are fully backed by the credit of the U.S. Government CITATION Dal13 \l 1033 (Norton, 2013).

Corporate Bonds

Corporate bonds refers to the bonds which is issued by the private sector corporates in raising the capital for business development as well as refinancing existing business. The corporate bonds are typically structured similarly with the government bonds where they pay fixed coupons with a fixed redemption date.

Liquidity

U.S. Treasury securities are virtually regarded as the safest of all investments with no credit risk meaning that the credit will be dully met both with the probable interest and principal amount. The unique securities degreed safety heighten lower interest rates as compared to the riskier debt corporate bonds CITATION Dal13 \l 1033 (Norton, 2013).

Corporate bonds are fundamentally considered as a safer asset class since the bonds ordains a liquidation priority to the equity. Moreover, the bond issuers do makes coupons as well as the capital payments dully on their bonds thus describing the risk free associated to the corporate bonds.

Maturity

Treasuries tend to vary in their yield maturity from a period of few months such as the treasury Bills have maturity of a few years as compared to the treasury notes and bonds which can last for up to 30 years CITATION MIN15 \l 1033 (ZENG, 2015). Investment grade corporate bonds are available in similar maturities, from a few years up to 30 years. The corporate bond do have the same maturities but they takes up to 10 years for high yielding bonds.

Volatility

Corporate bonds tend to carry higher interest rates as compared to the government treasuries since there is high risk that the business firm may liquidate and default while the government treasures can just print more money as the need them CITATION Dal13 \l 1033 (Norton, 2013). The treasuries are considered to be far less volatile since the subsequently fluctuate based on the issuers earnings.

Financial Intermediary

Financial intermediary refers to the financial institutions that offers the financial support and saving for firms or individuals. The financial intermediary involves institution such as investment banks, corporate societies, insurance companies as well as pension funds which facilitates the need of different financial borrowers.

The financial products that the consumers use from the Financial Intermediaries

The financial intermediaries conceptualizes on fundamental financial products which benefits the individuals and firms. The financial products includes the following;

Reduction of transaction cost

The financial intermediary substantiates the transformation of the credit portfolio which are required by financial borrowers such as individuals and firms into deposit portfolio which are requires by the financial lenders CITATION Adr14 \l 1033 (Adrian, 2014). The financial intermediaries centralizes the process between the lenders and borrowers which tend to avoid the waste and replication of the attached verification cost. Moreover, the financial intermediaries through reduction of cost heightens on exploitation of the economy by enforcing firms or individual to debt contracts.

Provision of liquidity

Liquidity provision accentuates the significant financial products of intermediaries where depositors experience the liquidity risk thus requires the need improving the liquidity position to support the concern of meeting the demanding financial liabilities CITATION Adr14 \l 1033 (Adrian, 2014). The financial intermediaries thus enhances substantial individuals as well as firm operation in regard to the provision of the liquidity which facilitates the financing assets which promotes higher return on them.

Provision of information

Financial intermediaries support the financial institutions through diversification of the portfolio assets which promotes effective communication that effectively prompt the depositors into a risk free debt contract without the need of continuous monitoring of the presumed transactions.

Debt renegotiation

Through the product of the financial intermediaries, the firms access the funds to enhance the capital investment without the depressive measures and frictions due to the adverse selection barriers as well as the moral hazard attributable to the lending framework CITATION Adr14 \l 1033 (Adrian, 2014). The intermediaries capitalizes on a system of financial intermediation where the creditors as well as borrowers adopt a commitment such as contract in enhancing accessibility of funds to individual and firms.

References

BIBLIOGRAPHY Adrian, T. E. (2014). Financial Intermediaries and the CrossSection of Asset Returns. The Journal of Finance, 2557-2596.

Norton, D. A. (2013, March 8). Difference between Corporate Bonds and Treasuries. Retrieved from http://marketrealist.com/2013/03/difference-between-corporate-bonds-and-treasuries/

ZENG, M. (2015, November 3). U.S. Government Bonds Hit Highest Yield in Weeks. Retrieved from http://www.wsj.com/articles/u-s-government-bonds-hit-highest-yield-in-weeks-1446563184

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