1 / 10

Economics 434

Economics 434. Financial Markets Professor Burton University of Virginia Fall 2011. Two Pillars of Capital Markets. 1. Debt. 2. Equity. Debt. Has a fixed return (categorized by Issuer): Government: sovereign, municipal Corporate: public & private Individual: (mortgages, cc’s).

jana-callahan
Télécharger la présentation

Economics 434

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Economics 434 Financial Markets Professor Burton University of Virginia Fall 2011

  2. Two Pillars of Capital Markets 1. Debt 2. Equity

  3. Debt • Has a fixed return (categorized by • Issuer): • Government: sovereign, • municipal • Corporate: public & private • Individual: (mortgages, cc’s)

  4. Sovereign Debt is Government Debt • Two possibilities • They can print their own currency • USA • Switzerland • Japan • China • They are part of a larger currency union • France, Germany • Greece, Spain, Italy • California, Virginia (this is usually called “municipal” debt)

  5. Assume you can print your own currency • A “technical default” would only occur by choice, since any obligation can be satisfied by printing money • But value of future payments may be very uncertain (think inflation) • This could be a default as well because, effectively, the borrower pays back less value than was received from the lender

  6. The concept of “default free security” • This means that the security honors its promises (it does not mean the security is riskless) • If it says it will pay you $ X, then it will pay you $ X exactly as promised • But, what is $ X worth at time of payment?

  7. Example of “default free security” • Sovereign debt (debt issued by government) • In the US • Treasury bills (issued with less than one year of maturity) • Treasury notes (issued with more than one year of maturity but less than ten years of maturity) • Treasury bonds (issued with ten or more years of maturity)

  8. US Treasury Debtas of 7/31/11 • $ 9,755,796,000,000 ($ 9.7 Trillion) • Made up of: • $ 1.5 Trillion in bills • $ 6.2 Trillion in notes • $ 1 Trillion in bonds • The rest US savings bonds and things like that • Intergovernmental holdings $ 4.5 Trillion • Total debt is $ 9.75 plus $ 4.58 equals $ 14.3

  9. Who Owns US Debt? • $ 4.47 owned by non-US • The rest, one way or another, is owned domestically

More Related