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This chapter examines the types of assets and investments in financial markets. There are three types of financial assets including fixed-income securities, equities and derivative securities. The acquisition of financial assets is referred to as an investment and the rate of return on an asset is calculated as the sum of income and capital gains, divided by the purchase price. The analyses of the equity premium puzzle or the willingness of investors to hold bonds with lower rate of return suggest that many investors are both loss-averse and myopic. This chapter provides several relevant computational exercises and solutions.

This chapter provides an overview of the regulation of information used in analyzing the creditworthiness of fixed-income securities. It begins with a discussion of credit analysis with respect to government and corporate debt and asset-backed securities, with a focus on how credit rating agencies generate credit ratings. It then discusses regulatory concerns with undue reliance on credit ratings and the tradeoffs in mandating more granular disclosure and encouraging independent credit analysis to obviate such reliance. It ends with a discussion of the US and EU regulatory framework for the professionalization of credit rating agencies, for the publication of asset-level information, and for eliminating mechanistic reliance on credit ratings in financial regulation.

Related to Treasury securities are debt securities, which are offered by a wide range of issuers throughout the capital markets. The issuer is obligated by fixed-income securities to make fixed interest payments and repay the principal amount to the buyer upon maturity of the security. These instruments, also known as bonds, may carry less risk than equities but also offer a lower potential for returns. This chapter provides an overview of debt securities or bonds. It discusses the features and types of bonds, trust indentures, bond ratings and credit rating agencies, and regulation of bond-rating agencies. It also considers special types of fixed-income securities such as repurchase agreements or repos and mortgage-backed securities. Finally, it looks at securities that are exempted from registration and disclosure requirements under the Securities Act of 1933 and the Securities and Exchange Act of 1934.

Federal Reserve action has resulted in an increase in the prices of Treasury securities and a corresponding decrease in Treasury yields. Treasury securities are backed by the Full Faith and Credit of the United States. The Treasury Department issues Treasuries (bills, notes, and bonds) that represent direct obligations of the U.S. government. This chapter provides an overview of Treasury securities and their use by financial market participants to approximate the risk-free rate of return. It looks at primary dealers of Treasury securities and the factors that influence the yield and therefore the pricing of Treasury notes. It also discusses bond auctions and their effect on price, fixed-income securities and floating-rate securities, Treasury Inflation-Indexed Securities, and STRIPS (separate trading of registered interest and principal securities that are created through a process known as coupon stripping).

This chapter, which examines the development of the Chilean fixed-income securities market in general, and the corporate bond market in particular, begins by discussing the institutional development of the Chilean financial system (1973–2005). It then analyzes the development of the corporate bond market since 1990, and the recent corporate bond expansion.

This book investigates the mechanisms that different countries have used to slow down, or control, capital inflows, and in particular capital inflows associated with fixed income securities. It assesses whether the tools chosen by different countries were effective in decreasing the flow of capital, altering the maturity of the resulting external debt, and reducing macroeconomic vulnerability. Part One of this book deals with systemic issues related to capital mobility, with an emphasis on fixed income securities. It also describes the analytical and theoretical issues and presents cross-country evidence on the effectiveness, consequences, and costs of restricting capital mobility. Part Two provides eight country case studies, for Chile, Brazil, Argentina, South Korea, Malaysia, China, Singapore, and India, and a broad paper that evaluates, from a comparative perspective, the effects of capital controls on economic performance. An overview of the chapters included in this book is also given.