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Chapter 28, Part II. Relation with Other Financial Markets.

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Mar 1, 2012.

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  1. Administrator

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    Part II. Relation with Other Financial Markets.
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    Commander in Pips: In previous part we’ve discussed the inter-relations of the forex market with commodities. In the current chapter let’s turn to other financial markets, particularly to most important of them – bonds and equities.

    Relationship with the Bond market

    Commander in Pips: Initially I would like to say couple of words about bonds – just so you can become clear about what the beast is. Speaking simply and not diving into different nuances – “Bond” and “loan” have many similarities. Governments, municipal or corporations issue bonds to borrow money. A simple bond has the same requisites as any loan – notional value, term, percent rate, period of payment of accrued interest and maturity date. Bonds are purchased by those who have money and want to invest it with some predefined yield, term and risk level. They are those who lend money to the borrower. Borrowers are, in turn, those, who issue bonds. So, if you, for example will buy a bond of US Treasury – you will be a lender, a creditor of the US Government.

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    Pipruit: And could you give some more clarification to different terms – “yield”, “term”, “notional” and so on.
    Commander in Pips: Right. Notional or Principal Value is the sum that is borrowed by issuing particular bond. Very often this sum is typical for some authorities – usually it is 100K or 200K USD. Particularly this is the sum you will get at maturity of this bond. This is like you’ve lent 100$ to your friend. 10K is a notional amount.

    The second important parameter is annual coupon yield of the bond – the percent rate that will be paid on the notional value during whole time of the bond existing. Usually it is paid on some predefined schedule – mostly semiannually, but sometimes annually or quarterly. This is almost the same as a percent on your deposit in the bank.
     
    #1 Administrator, Mar 1, 2012
    Lasted edited by : Oct 8, 2016
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