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International Business Finance - Research Paper Example

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In finance, bond is considered as a debt instrument in which the investors lend money to the issuers of the bond for a definite period of time, with an obligation to receive variable or fixed interest rate after a specific interval and the principal amount at the end of the…
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International Business Finance
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Download file to see previous pages re liable to pay the interest at the pre-determined rate throughout the tenure of the bonds and repay the face value at the time of maturity which means there is no question of incurring loss for the investors out of investing in such financial instrument (Burger, Sengupta, Warnock and Warnock, 2014). However, in recent times it has been noticed in Europe that in some countries such as Denmark, Germany and Switzerland, the government bonds as well as corporate bonds are yielding the investors a negative return. To be more specific, such negative yields are not inflation-adjusted returns; the bonds are simply yielding the investors less than their capital (Ivashina and Becker, 2015). Therefore, the research paper will aim to investigate regarding credibility of bonds as a financial instrument, their buyers and the factors that may influence such investor to purchase bonds even with negative returns in order to find out the rationale behind such negative return and to identify buyers’ motivation behind purchasing such bonds with negative yield. For the purpose of analysis, relevant economic theory that may justify the reason behind buying bonds with negative yields shall also be incorporated.
Traditionally, bond is considered to be one of the most secured investment options among all other financial instruments available in the financial system. Dann (2005) has defined financial instrument as a mechanism that institutes a contractual right between the borrower and lender to receive and deliver some of money. Bond is a financial instrument that establishes a indenture between the two parties: bond holder and issuer. The indenture specifies that the issuer will pay a fixed or variable rate of interest during the whole life of the bond and will refund the principal amount at the time of maturity (Maginn, Tuttle, McLeavey and Pinto, 2010). Bonds can be of various types such as fixed and floating rate of bonds, zero coupon bonds, perpetual bonds, inflation-index bonds ...Download file to see next pagesRead More
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