Financial Markets and Institutions Essay Example | Topics and Well Written Essays - 500 words - 1

financial Markets and Institutions - Essay ExampleThe interest send packing either be fixed or vari competent. Fixed-rate wears interest no matter of the institution making enough money to pay, but variable rates displace vary depending on the market conditions prevailing. The attachs which interest rate are expected to reduce can either be irresistible or not depending on the view of the investor. A reducing rate bond will profit less hence unattractive, but on the other side it can be a taxation haven vehicle as corporate bonds are subject to federal taxes in mark up. Low-rate bond will either be tax exempt or attract economic crisis taxes hence it can be attractive from this viewpoint. To a firm a reducing rate bond is attractive as it will cost less to issue and service the bond. Conversely, a firm expecting the rates to increase has to contain other cheaper sources of financing like bank loan if it has less interest rate than what they will pay on bonds (Zacks ETF Res earch,2012).14. Bond Downgrade. . Explain how the downgrading of bonds for a particular corporation affects the prices of those bonds, the return to investors that currently hold these bonds, and the electric potential return to other investors who may invest in the bonds in the near future.Downgrading a bond would represent that the price of the bond will reduce significantly to market equilibrium set by aspect about the companys ability to service the bond. Downgrading arises from the ability of the company to service the bond which can be observed from the financial status of the company. If the company is facing financial difficulties, it might be able to pay the bonds when they mature or service current interest rates. Current investor will lose the regard as of their investment hence can offload the bond which can further reduce the price because of the low demand. When the price will have fallen to the least possible, it can be attractive to new investors who weigh that the price will rise in future.15. Junk Bonds. Merrito Inc. is a