Introduction to Bonds in Financial Markets and Their Terminology

The video introduces the concept of bonds in financial markets, explaining them as financial instruments used to raise finance. It covers who issues bonds, the role of bonds in the economy, and distinguishes bonds as debt capital. Key bond terms such as issue price, coupon payment, maturity date, and bond yield are explained. The video also discusses government bonds, specifically UK gilts, and how they are used to finance public spending. Finally, it details bond characteristics and calculations, including how bond yields are determined.

What is the primary purpose of issuing bonds?

• To raise finance

• To reduce government debt

• To provide equity to investors

• To increase company ownership

Which of the following is NOT a characteristic of bonds?

• Debt capital

• Maturity date

• Periodic payments

• Equity stake

What does the term 'coupon payment' refer to in bond terminology?

• The market price of the bond

• The periodic payments to bondholders

• The final payment at maturity

• The initial price of the bond

Why do governments issue bonds?

• To control interest rates

• To increase tax receipts

• To finance public spending exceeding tax income

• To reduce inflation

Who are the typical buyers of government bonds?

• Only domestic investors

• Only other governments

• Only foreign banks

• Any interested party, including investors and businesses

What is the bond yield primarily determined by?

• The issue date of the bond

• The original bond price

• The annual coupon payment and market price

• The maturity date of the bond

How does a change in the market price of a bond affect its yield?

• It decreases the yield

• It increases the yield

• It can either increase or decrease the yield

• It has no effect on the yield