I cannot completely understand why do we need Bonds for?

Question

I cannot completely understand why do we need Bonds for?

Answer 1

Bonds are the paper of a loan

If you buy a Government bond then you are allowing the government to borrow money

you can buy corporate bonds in this case you are loaning money to a company

municipal bonds are when you let a city or municipality borrow money. It is normally for  project like building  a bridge, power plant etc.

Bonds are in fact loans made between two parties secured by faith that they will be paid back. The greater the likelihood that the money will not be paid back typically the higher the interest rate on the bond.

bonds have a rating that means the likely hood you will be paid back the highest rating is AAA the lowest are called C which are called Junk bonds.

Answer 2

bonds r the secured investment with minimum risk involved.

Answer 3

Bonds are debt - pure and simple.  You lend a company or government agency your money and they issue a bond that repays with interest.

Answer 4

It's a way of getting a loan from a lot of lenders all at once.  It also make it easy for them to get out of the loan and get their cash back by selling to another lender, which makes more people want to lend.

Answer 5

A bond is an agreement that an issuer makes to an investor in exchange for money--generally an agreement to pay the money back in the future, with interest.

Neither party "needs" the bond, but the issuer thinks it is in their interest to bind themselves to this agreement, because it is a way of raising money which they need right now.

The investor thinks it is in their interest to pay for the bond because they think the future value they will receive offers them a decent return, based on what they have to pay today, and  taking into account all relevant risks.

Until fairly recently (1980s?) there was virtually no corporate bond market in any country besides the US.  Any corporation that wanted to borrow money had to get it from a bank.  Now, corporations can borrow money from a number of sources, including banks, mutual funds, pension funds, individuals, etc., by issuing corporate bonds.

Answer 6

Because pieces of paper are easier to carry than gold bars.

Gold, on the other hand can be easily melted.

Also, if you steal bonds you cannot easily sell them because they have serial numbers.

Back in the day bandits used to rob trains and armored cars.

Today, gold is safely stored in vaults and it no longer moves from Point A to Point B.

We just move the bonds and the world is a lot safer.

Sure, criminals still rob armored cars to steal bonds but you have to be a professional thief to do that. (For more information about the subject I suggest you to buy the DVD "Heat")

Armored cars cannot be stolen anymore by bandits. (I mean criminals without college degrees)

One day, paper bonds will disappear too and they would move from Point A to Point B wirelessly over the Internet in a secure digital file of some sort and the days of armored cars being stolen to get the bonds will be gone forever.

Sure, criminals will find a way to steal those files somehow too but you would need a PhD to do so.

Answer 7

We need bonds for different reasons:

Private Companies like GM, GE etc issues bonds to raise money. They pay interest on this money to the bond holder. Bond is issued so that these companies can borrow money at cheap rates and they than use this money to expand or buy new machinery etc.

Government / Municipals issue bonds for similar reasons too. They issue bonds to raise money at low interests rates and then use this money for different purposes such as funding a war, making new roads/bridges etc.

Gist: Bonds are issued to raise money.

Answer 8

We do not need bonds in any way. They are like coins, since they have been in circulation for so long no one wants to get rid of them. All a bond does is give you an extreme way to save money. The penalty for cashing in a bond early is so harsh that it makes you want to save until it fully matures. Do not invest in any type of bond EE, E, or I. The next step up is a CD and if you want to go that route that would be much better than a savings bond.

Answer 9

the government uses bonds to stimulate the economy

newb your the reason we are in a recession