Question

b. Discuss five financial institutions that historically participate in the bond market. Furthermore, discuss the participation goals of each of the institutions.

Answer 1

Bonds were the most common type of debt that various institutions raise to fund their money.

The following are the various participants in the bond market-

a) Government - Government is the key player in the bond market. The main participation goal of government in bond market is to fund their requirement in terms of social spending . Generally in some developed countries instead of borrowing form financial institutions many government tend to issue bonds to raise funds. These are also very well subscribed and brought as government bonds will be of low risk.

b) Corporate entitities - Corporate entities also participate in bond market but these generally play the dual role that is they buy the bonds inorder to get return and also they issue bonds to raise funds.

c) General Public - Individuals generally enter the bond market inorder to make savings of their money buy purchasing bonds. These generally cannot issue bonds but they buy the bonds.

d) Mutual Funds - Mutual funds were also one of the key participants in bond market they generally buy and sell bonds inorder to hedge and reduce the risk of their portfolios which they maintain with the money funds by the unit holders.

e) Investment banks and financial institutions - Investment banks and financial institutions generally help in underwriting the issue of bonds. Howerver they may also participate in the buying the bonds .