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Debt

Debt

Debt is that which is owed. A person or company owing debt is called a debtor. An entity to whom debt is owed is called a creditor. Debt is used to borrow purchasing power from the future. Companies use debt as a part of their overall corporate finance strategy.

Payment

People or organisations often enter into agreements to borrow something. Both parties must agree on some standard of deferred payment, most usually a sum of money denominated as units of a currency, but sometimes a like good. For instance, one may borrow shares, in which case, one may pay for them later with the shares, plus a premium for the borrowing privilege, or the sum of money required to buy them in the market at that time.

Types of debt

There are numerous types of debt obligations. They include loans, bonds, mortgages and promissory notes. It is common to borrow large sums for major purchases, such as a mortgage, and pay it back with an agreed premium interest rate over time, or all at once at a later date (balloon payment). The amount of money outstanding is usually called a debt. The debt will increase through time if it is not repaid faster than it grows. In some systems of economics this effect is termed usury, in others, the term "usury" refers only to an excessive rate of interest, in excess of a reasonable profit for the risk accepted. Large organizations can issue debt in the form of securities, known as bonds. Each bond entitles the holder to interest and principal repayments. Bonds are traded in the bond markets, and are widely used as relatively safe investments. Securitization Securitization occurs when a company lumps together a group of assets or receivables usually in different tranches determined by the riskiness of the debtor and sells them to the market through a trust. The cash flows from these receivables are used to pay the holders of this paper. Companies often do this in order to remove these assets from their balance sheets and monetize an asset. Although these assets are "removed" from the balance sheet and are supposed to be the responsibility of the trust, that does not end the company's involvement because the company often maintains what is called an interest only strip or first lost piece in the securitization. The piece that the company maintains gets hit first with any losses the trust may incur before any of the other investors see a loss, meaning that the investor in a securitization would get paid in case there are massive defaults and the company who securitized the assets would not get paid on its portion. The aforementioned brings into question whether the assets are truly of balance sheet given the company's commitment to keeping losses to investor at a minimum. Many rating agencies consider securitization debt because of their commitment to keeping these trusts loss free. If it has a cash flow coming in it can be securitized.

Debt, inflation and the exchange rate

As noted above, debt is normally denominated in a particular monetary currency, and so changes in the valuation of that currency can change the effective size of the debt. This can happen due to inflation or deflation, so it can happen even though the borrower and the lender are using the same currency. Thus it is important to agree on standards of deferred payment in advance, so that a degree of fluctuation will also be agreed as acceptable. It is for instance common to agree to "US dollar denominated" debt. The form of debt involved in banking gives rise to a large proportion of the money in most industrialised nations (see money and credit money for a discussion of this). There is therefore a complex relationship between inflation, deflation, the money supply, and debt. The store of value represented by the entire economy of the industrialized nation itself, and the state's ability to levy tax on it, acts to the foreign holder of debt as a guarantee of repayment, since industrial goods are in high demand in many places worldwide.

Inflation indexed debt

Borrowing and repayment arrangements linked to inflation-indexed units of account are possible and are used in some countries. For example, the US government issues two types of inflation-indexed bonds, Treasury Inflation-Protected Securities (TIPS) and I-bonds. These are one of the safest forms of investment available, since the only major source of risk — that of inflation — is eliminated. A number of other governments issue similar bonds, and some did so for many years before the US government. In countries with consistently high inflation, ordinary borrowings at banks may be inflation indexed also.

Debt ratings, risk and cancellation

Risk free interest rate

Main article: risk-free interest rate Lendings to stable financial entities such as large companies or governments are often termed "risk free" or "low risk" and made at a so-called "risk-free interest rate". This is because the debt and interest are highly unlikely to be defaulted. A textbook example of such risk-free interest is a US Treasury security - it yields you the minimum return available in economics, but you get the security of the knowledge that the US has never defaulted on its debt instruments. A risk-free rate is commonly used in setting floating interest rates, floating interest rate is usually calculated as risk-free interest rate plus a bonus to the creditor based on the creditworthiness of the debtor. However if the real value of a currency has changed in the meantime, the purchasing power of the money repaid may vary considerably from that which was expected at the commencement of the loan. So from a practical investment point of view, there is still considerable risk attached to "risk free" or "low risk" lendings. The real value of the money may have changed due to inflation, or, in the case of a foreign investment, due to exchange rate fluctuations. The Bank for International Settlements is an organisation of central banks that sets rules to define how much capital banks have to hold against the loans they give out.

Ratings and creditworthiness

Debt of countries as well as private corporations is rated by rating agencies, such as Moody's, A.M. Best and Standard & Poor's. These agencies assess the ability of the debtor to honor his obligations and accordingly give him a credit rating. Moody's for example uses the letters Aaa Aa A Baa Ba B Caa Ca C, where ratings Aa-Caa are qualified by numbers 1-3. Munich Re, for example, currently is rated Aa3 (as of 2004). S&P and other rating agencies have slightly different systems using capital letters and +/- qualifiers. A change in ratings can strongly affect a company, since its cost of refinancing depends on its creditworthiness. Bonds below Baa/BBB (Moody's/S&P) are considered junk- or high risk bonds. Their high risk of default is compensated by higher interest payments. Bad Debt is a loan that can not (partially or fully) be repaid by the debtor. The debtor is said to default on his debt. These types of debt are frequently repackaged and sold below face value.

Cancellation

Short of bankruptcy, very often debts are wholly or partially forgiven. Traditions in some cultures demand that this be done on a regular (often annual) basis, in order to prevent systemic inequities between groups in society, or anyone becoming a specialist in holding debt and coercing repayment. International Third World debt has reached the scale that many economists are convinced that debt cancellation is the only way to restore global equity in relations with the developing nations.

Effects of debt

Debt allows people and organisations to do things that they otherwise wouldn't be able or allowed to. Commonly, people in industrialised nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. Companies also use debt in many ways to leverage the investment made in their private equity. This leverage, the proportion of debt to equity, is considered important in determining the riskiness of an investment; the higher more debt per equity, the riskier. Debt as a whole is a sign of optimism, a society believes in its future (earnings especially), and of lack of work ethic, a society postpones the solution to present problems (when it compensates a fall in revenues, perceived as short term, by an increase in debt for instance) Excesses in debt accumulation have been blamed for exacerbating economic problems. For example, prior to the beginning of the Great Depression debt/GDP ratio was very high. Economic agents were heavily indebted. This excess in debt, equivalent to excessive expectations on future returns, accompanied asset bubbles (stock market). When expectations corrected, deflation and credit crunch followed. Deflation effectively made debt more expansive and as Fisher explained this reinforced deflation again. In order to reduce their debt level, economic agents reduced their consumption and investetment. The reduction in demand reduced business activity and caused further unemployment. Also in a direct sense, more bankruptcies occurred due to increased debt cost caused by deflation, and the reduced demand. It is possible for some organisations to enter into alternative types of borrowing and repayment arrangements which will not result in bankruptcy. For example, companies can sometimes convert debt that they owe into equity in themselves. In this case, the lender hopes to regain something equivalent to the debt and interest in the form of dividends and capital gains of the borrower. The "repayments" are therefore proportional to what the borrower earns and so can not in themselves cause bankruptcy. Once debt is converted in this way, it is no longer known as debt. See: Perils of the debt-propelled economy by Henry C K Liu http://www.atimes.com/atimes/Global_Economy/DI14Dj01.html

Arguments against debt

Main article: Criticism of debt Some argue against debt as an instrument and institution, on a personal, family, social, corporate and governmental level. Economics criticism focuses on debt fostering inequality. Muslim religion forbids lending with interest, the catholic church long did, and the torah wrote that all debts had to be erased every 7 years and every 50 years. Debt from a religious view point is condemned because by tying past and future it cuts from the present where God is to be found. Feminism concentrates on the perceived coercive nature of debt contracts. Environmental critics point out the disparity between material use of resources from economic growth and the limited resources of natural production. Examples would be the low ecological yield of natural resources and the limited usable energy from the sun.

Levels and flows

Main article: debt levels and flows Global debt underwriting grew 4.3% year-over-year to $5.19 trillion during 2004.

External links

- [http://www.oecd.org/site/0,2865,en_21571361_31596493_1_1_1_1_1,00.html OECD country debt]
- [http://www.free-debt-consultation.com Consumer debt help]
- [http://www.upsprd.com Information about Debt and Loans] Category:Credit Category:Core issues in ethics ja:負債

Debtor

In economics a debtor (or a borrower) owes money to a creditor Category:Accounting

Creditor

A creditor is a party (e.g. person, organization, company, or government) that claims that a second party owes the first party some property or service. The first party, in general, has provided some property or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property or service. The first party is frequently called a lender, and the second party is frequently called a debtor or borrower. In other words, your creditors are people to whom you owe money. The term creditor is frequently used in the financial world, especially in reference to short term loans, long term bonds, and mortgages. The term creditor derives from the notion of credit. In modern America, credit refers to a rating which indicates the ability of a borrower and likelihood to pay back his loan. In earlier times, credit also referred to reputation or trustworthiness. Category:Accounting

Purchasing power

In economics, purchasing power refers to the amount of goods and services a given amount of money — or, more generally, liquid assets — can buy. As Adam Smith noted, having money gives one the ability to "command" others' labor, so purchasing power to some extent is power over other people. If money income stays the same, but the price of most goods go up, the effective purchasing power of that income falls. Falling purchasing power can thus be part of inflation. However, inflation does not always imply falling purchasing power of one's income, since one's money income may rise faster than inflation. In inflation, there are some winners and some losers.

Standard of deferred payment

A standard of deferred payment is the accepted way (in a given market) to settle a debt. For example, while the gold standard reigned, gold or any currency convertible to gold at a fixed rate constituted such a standard. As of 2003, the US dollar or Euro are the most generally accepted standards for international settlements. While for certain kinds of transactions (such as for illegal goods like narcotics or weapons) gold or diamonds may be preferred as the medium of exchange, there being no recourse in case of counterfeit currency being used, there is rarely any deferral of payment, and if there is, it will most likely be stated in dollars. This is distinct from the store of value function which relates to the saving, storing, and retrieval of value, and from the unit of account function which requires fungibility so accounts in any amount can be readily settled. It is also distinct from the medium of exchange function which requires durability when used in trade, and a minimum of opportunity to cheat others - as the diamond or gold example makes obvious. When currency is stable, money can serve all four functions. When it isn't, or when complex and volatile forms of financial capital are involved, it becomes important to identify a single standard of deferred payment to avoid cheating by selecting a denominator of debt that one knows is dropping in value. Historically, there have been many times when creditors have had to hide from debtors to avoid being paid off in near worthless currency. Time-based currency such as Ithaca Hours establishes fixed amounts of human labour as the only standard of deferred payment.

Unit of account

In economics, the unit of account is a unit of measurement of market value. Goods for sale in a market are priced using a unit of account. In this manner the value is measured by the seller and expressed to the buyer. Contracts of credit or debt are denominated in a unit of account. In this manner the agreed value of the debt is measured, and the method of settling the debt is defined. Whilst all market participants are free to use any unit of account that they prefer, most markets have only a few widely accepted units of account. For example in Japan the most universal unit of account is the yen. Historically the unit of account function has been served by one of the following:
- some fungible commodity or money
- an agreement for service or labour or free time/leisure Some examples from history include:
- barrels of rum
- a fixed weight of salt
- packets of cigarettes
- a fixed weight of gold
- a quantity of paper notes (eg dollar bills)
- cows It is generally assumed that a good unit of account is one that is stable. Just as a measuring stick used to measure length should itself be stable in length so to a unit of account used to measure value should itself be stable in value. However there are schools of economic thought that challenge this view point. While it is most common to think of accounts in currency, it is possible to hold accounts in gold (as e-gold does) or options in various other commodities. Value is ultimately a subjective quality so the value that a unit of account measures is in practice a market value. The point at which multiple subjective view points converge for the purposes of a free exchange of goods. Inflation and deflation are the rise and fall, respectively, in the value of the unit of account.

Selecting the Unit of Account

An accepted unit of account can emerge freely from natural market dynamics and cultural forces (as gold historically did) or else it can be imposed through legal tender laws (as most modern units of account are). A first step to identifying any suitable unit of account is to determine what styles of capital are used as factors of production for a given economy. Unless the units really represent an artificial and ultimate form of scarcity, they will not be treasured or sought as much as something else in the economy, and thus, accounts will quickly be depleted to purchase the scarcer good. This disables saving, banking, even central banking, and makes investment very difficult - hoarding all but inevitable.

Miscellaneous

An important difference between units of account and standards of deferred payment is that there are circumstances in which a deferred payment may never be made, e.g. bankruptcy. There are never circumstances in which a unit of account will not be called on, claimed by someone. Accounting depends on - accountability. By contrast, a poor medium of exchange disables trade, and a poor standard of deferred payment disables bond, debt, loan and mortgage contracts. A poor store of value costs only those who actually purchase and attempt to store it, while a poor unit of account arguably affects absolutely everyone. It might be suggested that the electron might be the ideal unit of account, in an aggregate form such as the kilowatt hour. While it is a poor medium of exchange except on power grids, and a very poor store of value even in a fuel cell, and possibly only a fair standard of deferred payment, it would be very hard to argue that there had been a change in the nature of an electron that rendered it less stable or useful than it was when it was first put upon account.

Currency

:For current exchange rates, see Exchange links. A currency is a unit of exchange, facilitating the transfer of goods and services. It is a form of money, where money is defined as a medium of exchange (rather than e.g. a store of value). A currency zone is a country or region in which a specific currency is the dominant medium of exchange. To facilitate trade between currency zones, there are exchange rates i.e. prices at which currencies (and the goods and services of individual currency zones) can be exchanged against each other. Currencies can be classified as either floating currencies or fixed currencies based on their exchange rate regime. In common usage, currency sometimes refers to only paper money, as in "coins and currency", but this is incorrect. Coins and paper money are both forms of currency. In most cases, each country has monopoly control over its own currency. Member countries of the European Monetary Union are a notable exception to this rule, as they have ceded control of monetary policy to the European Central Bank. In cases where a country does have control of its own currency, that control is exercised either by a Central Bank or by a Ministry of Finance. In either case, the institution that has control of monetary policy is referred to as the monetary authority. Monetary authorities have varying degrees of autonomy from the governments that create them. In the United States, the Federal Reserve operates with full independence from the government. It is important to note that a monetary authority is created and supported by its sponsoring government, so independence can be reduced or revoked by the legislative or executive authority that creates it. In almost all Western countries, the monetary authority is largely independent from the government. Several countries can use the same name, each for their own currency (e.g. Canadian dollars and US dollars), several countries can use the same currency (e.g. the euro), or a country can declare the currency of another country to be legal tender. For example, Panama and El Salvador have declared US currency to be legal tender, and from 1791-1857, Spanish silver coins were legal tender in the United States. At various times countries have either restamped foreign coins, or used currency board issuing one note of currency for each note of a foreign government held, as Ecuador currently does. Each currency typically has one fractional currency, often valued at 1/100 of the main currency: 100 cents = 1 dollar, 100 centimes = 1 franc, 100 pence = 1 pound. Units of 1/10 or 1/1000 are also common, but some currencies do not have any smaller units. Mauritania and Madagascar are the only remaining countries that do not use the decimal system; instead, the Mauritanian ouguiya is divided into 5 khoum, while the Malagasy ariary is divided into 5 iraimbilanja. However, due to inflation, both fractional units have in practice fallen into disuse. See Non-decimal currencies for other (mostly historic) currencies with non-decimal divisions.

History

Early Currency

The origin of currency is the creation of a circulating medium of exchange based on a store of value. Currency evolved from two basic innovations: the use of counters to assure that shipments arrived with the same goods that were shipped, and the use of silver ingots to represent stored value in the form of grain. Both of these developments had occurred by 2000 BC. This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years. However, the collapse of the Near Eastern trading system pointed to a flaw: in an era where there was no place that was safe to store value, the value of a circulating medium could only be as sound as the forces that defended that store. Trade could only reach as far as the credibility of that military.

Coinage

These factors led to the shift of the store of value being the metal itself: at first silver, then both silver and gold. Metals were mined, weighed, and stamped into coins. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they also created a new unit of account, which helped lead to banking. It was with Archimedes' principle that the next link in currency occurred: coins could now be easily tested for their fine weight of metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with. (See Coinage). In most major economies using coinage, copper, silver and gold formed three tiers of coins. Gold coins were used for large purchases, payment of the military and backing of state activities. Silver coins were used for large, but common, transactions, and as a unit of account for taxes, dues, contracts and fealty, while copper coins represented the coinage of common transaction. In Europe this system worked through the medieval period because there was virtually no new gold, silver or copper introduced through mining or conquest. Thus the overall ratios of the three coinages remained roughly equivalent. In China, however, the need for credit and for circulating medium led to the introduction of paper money. In Europe paper money was first introduced in Sweden 1661. Sweden was rich on copper but because of copper's low value extraordinarily big coins had to be made. It was probably more convenient to have a note stating your possession of such a coin.

The Era of Hard and Credit Money

Paper money was, in one sense, a return to the oldest form of currency: it represented a store of value backed by the credibility of the issuing authority. Drafts and checks issued privately had been in intermittent use for centuries, however, it was with the rise of global trade that paper money would find a permanent place in currency. The advantages of paper currency were numerous: it reduced transport of gold and silver, and thus lowered the risks; it made loaning gold or silver at interest easier, since the specie (gold or silver) never left the possession of the lender until someone else redeemed the note; and it allowed for a division of currency into credit and specie backed forms. It enabled the sale of stock in joint stock companies, and the redemption of those shares in paper. However, these advantages held within them disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more of it than they had specie to back it with. Second, because it created money that did not exist, it was subject to Gresham's Law: people would exchange money rather than coins of the same value, and this increased the velocity of money and therefore increased inflationary pressures, a fact observed by David Hume in the 18th century. The result is that paper money would often lead to an inflationary bubble, which would then collapse when the demand for paper notes fell to zero, and people began demanding hard money. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army. For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive, since the speculative profits of trade and capital creation were quite large. Major nations established mints to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.

Legal Tender Era

With the creation of central banks, currency underwent several significant changes. During both the coinage and credit money eras the number of entities which had the ability to coin or print money was quite large. One could, literally, have "a license to print money"; many nobles had the right of coinage. Royal colonial companies, such as the Massachusetts Bay Company or the British East India Company could issue notes of credit—money backed by the promise to pay later, or exchangeable for payments owed to the company itself. This led to continual instability of the value of money. The exposure of coins to debasement and shaving, however, presented the same problem in another form: with each pair of hands a coin passed through, its value grew less. The solution which evolved beginning in the late 18th century and through the 19th century was the creation of a central monetary authority which had a virtual monopoly on issuing currency, and whose notes had to be accepted for "all debts public and private". The creation of a truly national currency, backed by the government's store of precious metals, and enforced by their military and governmental control over an area was, in its time, extremely controversial. Advocates of the old system of Free Banking repealed central banking laws, or slowed down the adoption of restrictions on local currency. (See Gold standard for a fuller discussion of the creation of a standard gold based currency). At this time both silver and gold were considered legal tender, and accepted by governments for taxes. However, the instability in the ratio between the two grew over the course of the 19th century, with the increase both in supply of these metals, particularly silver, and of trade. This is called bimetallism and the attempt to create a bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of inflationists. Governments at this point could use currency as an instrument of policy, printing paper currency such as the United States Greenback, to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed. By 1900, most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. Governments too followed Gresham's Law: keeping gold and silver paid, but paying out in notes.

The Paper Money Era

See the history of paper money.

Modern currencies

To find out which currency is used in a particular country, start at the countries of the world or look at the table of historical exchange rates. Nowadays ISO have introduced a system, ISO 4217, using three-letter codes to define currency (as opposed to simple names or currency signs), in order to remove the confusion that there are dozens of currencies called the dollar and many called the franc. Even the pound is used in nearly a dozen different countries, all, of course, with wildly differing values. In general, the three-letter code uses the ISO 3166-1 country code for the first two letters and the first letter of the name of the currency (D for dollar, for instance) as the third letter. The International Monetary Fund uses a variant system when referring to national currencies. :For exchange rates, see here. See Non-decimal currencies

Currency names

Currency names of the world in alphabetic order by currency name:

Privately-issued currencies

From the earliest times token coins were issued by companies in remote parts of the world to overcome the shortage of circulating currency. Several large companies issue points to their customers, to be redeemed for products and services produced by that company. Often, a network of companies will join to share in the offering and redemption of points. While these can hardly be considered stable currency systems, they present many of the same features as "legitimate" currency: they are a store of value, issued in discrete units; they are controlled by a central issuing authority; and they have varying rates of exchange with other forms of currency. For example, frequent flyer miles can be bought using U.S. dollars.
- Frequent Flyer Miles: A type of private currency, different versions of which are issued by most major airlines to encourage customer loyalty. Other customer loyalty incentives have followed this model, including points systems offered by soft drink manufacturers such as PepsiCo. Subway tokens, issued by city transit authorities, can be considered a highly specialized form of currency.
- E-gold: Privately issued digital currency backed by gold
- Scrip: A type of private currency where a certain value is captured, and used to purchase goods from a company. Examples of scrip include gift certificates, gift cards, and Disney Dollars or Canadian Tire Money. However, scrip is not considered a currency in itself, but merely a store of value, denominated in another currency.
- Liberty Dollar: A currency backed by silver, with a one-to-one exchange rate with the U.S. Dollar.

Local currencies

In economics, a local currency is a currency not backed by a national government, and intended to trade only in a small area. Advocates such as Jane Jacobs argue that this enables an economically depressed region to pull itself up, by giving the people living there a medium of exchange that they can use to exchange services and locally-produced goods (In a broader sense, this is the original purpose of all money.) Opponents of this concept argue that local currency creates a barrier which can interfere with economies of scale and comparative advantage, and that in some cases they can serve as a means of tax evasion. Local currencies can also come into being when there is economic turmoil involving the national currency. An example of this is the Argentine economic crisis of 2002 in which IOUs issued by local governments quickly took on some of the characteristics of local currencies. see: local currency also called community currency

World currency

With such developments as the Euro allowing for facilitated trade and perhaps a corresponding increase in a wider identity, proposals for a global currency have accelerated, even while it is recognized that several political and economic factors would need to be addressed and intermediate steps taken before such a concept might be accepted by the diverse nations of the world.

Historic Currencies

Ancient Greece

- Drachma

Ancient Rome

- Antoninianus
- As
- Denarius
- Dupondius
- Sestertius

Africa

- Dollar - Rhodesia
- Escudo
- Mozambican escudo - Mozambique
- São Tomé and Príncipe escudo - São Tomé and Príncipe
- Ekwele (Ekuele) - Equatorial Guinea
- Florin - Kenya, Somalia, Tanzania and Uganda
- Franc
- Moroccan franc
- Malagasy franc
- Metica - Mozambique
- Peseta - Equatorial Guinea
- Peso - Guinea Bissau
- Pound
- Gambian pound - Gambia
- Ghanaian pound - Ghana
- Libyan pound - Libya
- Malawian pound - Malaŵi
- Nigerian pound - Nigeria
- Rhodesian pound - Rhodesia
- South African pound - South Africa
- Sudanese pound - Sudan
- West African pound - Cameroon, Gambia, Ghana, Nigeria and Sierra Leone
- Rial - Morocco
- Rupee - Kenya, Somalia, Tanzania and Uganda
- Shilling - Kenya, Somalia, Tanzania and Uganda
- Somalo - Somalia
- Syli - Guinea
- Zaire - Zaire

America

- Austral - Argentina
- Colón - El Salvador
- Continental Currency - Colonial America
- Cruzeiro, Cruzado - Brazil
- Escudo - Chile
- Gulden - Suriname
- Inti - Peru
- Peso
- Bolivian peso
- Costa Rican peso
- Guatamalan peso
- Honduran peso
- Nicaraguan peso
- Paraguayan peso
- Scudo - Bolivia
- Sucre - Ecuador
- Trade dollar - United States of America

Asia

- Dollar - Mongolia
- Hwan - Korea
- Lira - Turkey
- Mohar - Nepal
- Pound - Israel
- Rixdollar - Sri Lanka
- Ruble - Tajikistan
- Rupee
- Gulf rupee - Bahrain, Kuwait, Oman, Qatar and UAE
- Burmese rupee - Burma
- Tael - China

Australasia

- Pound
- Australian pound
- New Zealand pound

Europe

- 14 national currencies which were replaced by the Euro in 2002:
- Austrian schilling
- Belgian franc
- Dutch gulden
- Finnish markka
- French franc
- German mark
- Greek drachma
- Irish pound
- Italian lira
- Luxemburgese franc
- Portuguese escudo
- San Marinese lira
- Spanish peseta
- Vatican lira
- Daler
- Rigsdaler - Denmark and Norway
- Rijkdaalder - Netherlands
- Riksdaler - Sweden
- Speciedaler - Norway
- Dinar
- Bosnia and Herzegovina dinar
- Croatian dinar
- Yugoslav dinar
- Florin - Austria
- Gulden
- Austro-Hungarian gulden - Austria-Hungary
- Danzig gulden - Danzig
- South German gulden - Baden, Bavaria, Frankfurt, Hohenzollern, Württemberg and other states
- Karbovanets - Ukraine
- Koruna - Slovakia (Second World War)
- Lira - Turkey
- Marka - Poland
- Real
- Spanish real (plural reales)
- Portuguese real (plural réis)
- Rubłi - Latvia
- Perper
- Serbian perper
- Montenegrin perper
- Scudo
- Italian scudo - Lombardy-Venetia, Modena and Papal States
- Maltese scudo - Malta
- Peso - Spain
- Talonas - Lithuania
- Thaler - Germany, Austria, Hungary
- Conventionsthaler
- Reichsthaler
- Vereinsthaler

Accounting units

- Franc Poincaré
- Special Drawing Rights
- European Currency Unit
- Currency sign
- Krugerrand
- Fictional currency
- Local currencies
- Petrocurrency
- Currency Pair

Proposed Currencies

- Eco
- Perun

Lists

- List of currencies
- List of motifs on banknotes
- List of international trade topics
- List of historical exchange rates

External links

- [http://dictionary.reference.com/search?q=currency Table of currencies (from dictionary.com)]
- [http://www.tokencoins.com The early currencies of Southern Africa]
- [http://aes.iupui.edu/rwise/ Ron Wise's World Paper Money Homepage]
- [http://ostermiller.org/calc/currency.html Currency exchange rate conversion calculator] from ostermiller.org
- [http://tokyoahead.com/main/staticpages/index.php/chart2 Historical Currency Charts, Matrix & Converter]
- [http://haas.ca/articles/20040311-currency.cfm Minting New Security]
- [http://www.ratesfx.com/resources/currency.html Currency resources on the net]
- http://www.banknotes.com
- http://www.banknoteworld.com
- [http://www.forexpower.info Foreign Currency Trading Articles]
- [http://www.rebelstatescurrency.com/ Currency issued by the individual States of the Confederacy during the American Civil War]
- [http://www.monetary-unit.com/ Ad-Free website on worldwide currencies with short Descrption and Pictures]

Records

- [http://tomchao.com/trivia.html A site compiling information on cu

Loan

:This page is about the financial instrument. See also loanword (linguistics), interlibrary loan. A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. Acting as a provider of loans is one of the principal task for financial institutions. For banks loans are generally funded by deposits. For other institutions issuing of debt contracts, such as bonds is a typical source of funding. Other types of debt include mortgages, credit card debt, bonds, and lines of credit. A mortgage is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The bank, however, is given the title to the house until the mortgage is paid off in full. If the borrower defaults on the loan, the bank can repossess the house and sell it, to get their money back. The abuse in the granting of loans is known as predatory lending. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her.

Bond

---- In finance, a bond is a debt security, that is the issuer owes the holders a debt and is obliged to pay the principal and interest (the coupon), together with other obligations under the term of the issue, such as the obligation to give certain information. Bonds are generally issued for a fixed term (the maturity) longer than one year. A bond is just a loan, but in the form of a security, although terminology used is rather different. The issuer is equivalent to the borrower, the bond holder to the lender and the coupon to the interest. Debt securities with a maturity shorter than one year are typically bills, certificates of deposit or commercial paper, and considered money market instruments. Traditionally, the U.S. Treasury uses the word bond only for their issues with a maturity longer than ten years, and calls issues between one and ten year notes. Elsewhere in the market this distinction has disappeared, and both bonds and notes are used irrespective of the maturity. Market participants use bonds normally for large issues offered to a wide public, and notes rather for smaller issues originally sold to a limited number of investors. There are no clear demarcations. Bonds and stocks are both securities, but the difference is that stock holders own a part of the issuing company (have an equity stake), whereas bond holders are in essence lenders to the issuer. Also bonds have a definite lifespan, their maturity, whereas stocks may be held indefinitely. An exception is a console bond, which is a perpetuity.

Issuers

The range of issuers of bonds is very large. Almost any organization could issue bonds, but the underwriting and legal costs can be prohibitive. Regulations to issue bonds are very strict. Issuers are often classified as follows:
- Supranational agencies, such as the European Investment Bank or the Asian Development Bank issue Supranational bonds.
- National Governments issue Government bonds in their own currency. These are often called risk-free bonds. They also issue sovereign bonds in foreign currencies.
- Provincial, state or local authorities (municipalities). In the U.S. they issue what are known as municipal bonds
- Government sponsored entities in the U.S., such as the Federal Home Loan Mortgage Corporation (Freddie Mac) issue Agency bonds, commonly known as Agencies.
- Companies (corporates) issue Corporate bonds.
- Special purpose vehicles are companies set up for the sole purpose of containing assets against which bonds are issued, often asset-backed securities

Issuing bonds

Bonds are issued by governments or other public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of issuing bonds is through underwriting. One or more banks, forming a syndicate, underwrite the bonds, and sell them on to their customers. Government bonds are typically auctioned. Bonds enable the issuer to finance long-term investments with external funds.

Features of bonds

The most important features of a bond are:
- nominal, principal or face amount - the amount over which the issuer pays interest, and which has to be repaid at the end.
- issue price - the price at which investors buy the bonds when they are first issued. The net proceeds that the issuer receives, are calculated as the issue price, less the fees for the underwriters, times the nominal amount.
- maturity date - the date on which the issuer has to repay the nominal amount. After the maturity date the issuer has no more obligations to the bond holders, as long as all payments have been made of course. The length of time until the maturity date is often referred to as the term or simply maturity of a bond. The maturity can be any length of time, although debt securities with a term of less than one year are generally designated money market instruments rather than bonds. Most bonds have a term of up to thirty years. Some bonds have been issued with maturities of up to one hundred years, and some even do not mature at all. These are called perpetuities. In early 2005, a market developed in euros for bonds with a maturity of fifty years. In the market for U.S. Treasury securities, there are three groups of bond maturities:
- short term (Bills): maturities up to one year
- medium term (Notes): maturities between one and ten years
- long term (Bonds): maturities greater than ten years
- coupon - the interest rate that the issuer pays to the bond holders. Usually this rate is fixed throughout the life of the bond. It can also vary with a money market index, such as LIBOR, or indeed it can be more exotic. The name coupon originates from the fact that in the past, physical bonds were issued which had coupons attached to them. On coupon dates the bond holder would give the coupon to a bank in exchange for the interest payment.
- coupon dates - the dates on which the issuer pays the coupon to the bond holders. In the U.S., most bonds are semi-annual, which means that they pay a coupon every six months. In Europe, most bonds are annual and pay only one coupon a year.
- callability - Some bonds give the issuer the right to repay the bond before the maturity date on the call dates. These bonds are referred to as callable bonds. Most callable bonds allow the issuer to repay the bond at par. With some bonds, the issuer has to pay a premium, the so called call premium. This is mainly the case for high-yield bonds. These have very strict covenants, restricting the issuer in its operations. To be free from these covenants, the issuer can repay the bonds early, but only at a high cost.
- puttability - Some bonds give the bond holder the right to force the issuer to repay the bond before the maturity date on the put dates.
- call dates and put dates - the dates on which callable and puttable bonds can be redeemed early. There are three main categories.
- A Bermudan callable has several call dates, usually coinciding with coupon dates.
- A European callable has only one call date. This is a special case of a Bermudan callable.
- An American callable can be called at any time until the maturity date.
- indenture - a document specifying the rights of bond holders. In the U.S. federal and state securities and commercial laws apply to the enforcement of those documents, which are construed by courts as contracts. The terms may be changed while the bonds are outstanding, but amendments to the governing document often require approval by a majority vote of the bond holders.

Types of bond

- Fixed rate bonds have a coupon that remains constant throughout the life of the bond.
- Floating rate notes (FRN's) have a coupon that is linked to a money market index, such as LIBOR or EURIBOR, for example three months USD LIBOR +0.20%. The coupon is then reset periodically, normally every three months.
- Convertible bonds can be converted, on the maturity date, into another kind of security, usually common stock in the company that issued the bonds.
- High yield bonds are bonds that are rated below investment grade by the credit rating agencies. As these bonds are relatively risky, investors expect to earn a higher yield, hence the name high yield bonds. Those market participants that want to emphasize the risky nature of the bonds, also call them junk bonds.
- Zero coupon bonds do not pay any interest. They trade at a substantial discount from par. The bond holder receives the full principal amount on the maturity date. An example of zero coupon bonds are Series E savings bonds issued by the U.S. Government. Zero coupon bonds may be created from fixed rate bonds by financial institutions by "stripping off" the coupons. In other words, the coupons are separated from the final principal payment of the bond and traded independently.
- Inflation linked bonds, in which the principal amount is indexed to inflation. The interest rate is lower than for fixed rate bonds with a comparable maturity. However, as the principal amount grows, the payments increase with inflation. The government of the United Kingdom was the first to issue inflation linked Gilts in the 1980's. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the U.S. Government.
- Asset-backed securities are bonds whose interest and principal payments are backed by underlying cash flows from other assets. Examples of asset-backed securities are mortgage-backed securities (MBS), collateralized mortgage obligations (CMO) and collateralized debt obligations (CDO).
- Subordinated bonds are those that have a lower priority than other bonds of the issuer in case of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. The first bond holders in line to be paid are those holding what is called senior bonds. After they have been paid, the subordinated bond holders are paid. As the expectation that you get paid back is lower, the risk is higher. Therefore, subordinated bonds have a lower credit rating then senior bonds. The main examples of subordinated bonds can be found in bonds issued by banks, and asset-backed securities. The latter are often issued in tranches. The senior tranches get paid back first, the subordinated tranches later.
- Perpetual bonds are also often called perpetuities. They have no maturity date. The most famous of these are the UK Consols, which are also known as Treasury Annuities or Undated Treasuries. Some of these were issued back in 1888 and still trade today.

Trading and valuing bonds

The interest rate that the issuer of a bond must pay is influenced by a variety of factors, such as current market interest rates, the length of the term and the credit worthiness of the issuer. Since these factors are likely to change over time, the market value of a bond can vary after it is issued. Because of these differences in market value, bonds are priced in terms of percentage of par value. Bonds are not necessarily issued at par (100% of face value), but all bonds will trade at par at the moment before they reach maturity. At other times, prices can either rise (bond is priced at greater than 100), which is called trading at a premium, or fall (bond is priced at less than 100), which is called trading at a discount. Most government bonds are denominated in units of $1000, if in the United States, or in units of one hundred pounds, if in the United Kingdom. Hence, a deep discount US bond, selling at a price of 75.26, indicates a selling price of $752.60 per bond sold. (Often, bond prices are quoted in points and thirty seconds of a point, rather than in decimal form.) Some short-term bonds, such as the U.S. T-Bill, are always issued at a discount, and pay par amount at maturity rather than paying coupons. This is called a discount bond. The market price of a bond is the present value of all future interest and principal payments of the bond discounted at the bond's yield, or rate of return. The yield represents the current market interest rate for bonds with similar characteristics. The yield and price of a bond are inversely related so that when market interest rates rise, bond prices generally fall and vice versa. The market price of a bond may include the accrued interest since the last coupon date. (Some bond markets include accrued interest in the trading price and others add it on explicitly after trading.) The price including accrued interest is known as the "flat" or "tel quel price". (See also Accrual bond.) The interest rate adjusted for the current price of the bond is called the "current yield" or "earnings yield" (this is the nominal yield multiplied by the par value and divided by the price). Taking into account the expected capital gain or loss (the difference between the current price and the redemption value) gives the "redemption yield": roughly the current yield plus the capital gain (negative for loss) per year until redemption. The relationship between yield and maturity for otherwise identical bonds is called a yield curve.

See

- Bond valuation

Investing in bonds

Bonds are bought and traded mostly by institutions like pension funds, insurance companies and banks. Most individuals who want to own bonds do so through mutual funds. Still, in the U.S., nearly ten percent of all bonds outstanding are held directly by households. Bonds are generally viewed as safer investments than stocks, but this perception is only partially correct. Bonds do suffer from less day-to-day volatility than stocks, and bonds' interest payments are higher than dividend payments that the same company would generally choose to pay to its stockholders. Bonds are liquid — it is fairly easy to sell one's bond investments, though not nearly as easy as it is to sell stocks — and the certainty of a fixed interest payment twice per year is attractive. Bondholders also enjoy a measure of legal protection: under the law of most countries, if a company goes bankrupt, its bondholders will often receive some money back, whereas the company's stock often ends up valueless. However, bonds can be risky:
- Fixed rate bonds are subject to interest rate risk, meaning they will decrease in value when the generally prevailing interest rate rises (the opposite is true for bonds with negative convexity e.g bonds that allow for prepayment such as mortgage-backed securities). When the market's interest rates rise, then the market price for bonds will fall, reflecting investors' improved ability to get a good interest rate for their money elsewhere — perhaps by purchasing a newly issued bond that already features the newly higher interest rate. This drop in the bond's market price does not affect the interest payments to the bondholder at all, so long-term investors need not worry about price swings in their bonds. However, price changes in a bond immediately affect mutual funds that hold these bonds. Many institutional investors have to "mark to market" their trading books at the end of every day. If the value of the bonds held in a trading portfolio has fallen over the day, the "mark to market" value of the portfolio may also have fallen. This can be damaging for professional investors such as banks, insurance companies, pension funds and asset managers. If there is any chance a holder of individual bonds may need to sell his bonds and "cash out" for some reason, interest rate risk could become a real problem. (Conversely, bonds' market prices would increase if the prevailing interest rate were to drop, as it did from 2001 through 2003.) One way to quantify the interest rate risk on a bond is in terms of its duration.
- Bonds prices can become volatile if one of the credit rating agencies like Standard & Poor's or Moody's upgrades or downgrades the credit rating of the issuer. A downgrade can cause the market price of the bond to fall. As with interest rate risk, this risk does not affect the bond's interest payments, but puts at risk the market price, which affects mutual funds holding these bonds, and holders of individual bonds who may have to sell them.
- A company's bondholders may lose much or all their money if the company goes bankrupt. Under the laws of the United States and many other countries, bondholders are in line to receive the proceeds of the sale of the assets of a liquidated company ahead of some other creditors. Bank lenders, deposit holders (in the case of a deposit taking institution such as a bank) and trade creditors may take precedence. There is no guarantee of how much money will remain to repay bondholders. As an example, after an accounting scandal and a Chapter 11 bankruptcy at the giant telecommunications company Worldcom, in 2004 its bondholders ended up being paid 35.7 cents on the dollar. In a bankruptcy involving reorganization or recapitalization, as opposed to liquidation, bondholders may end up having the value of their bonds reduced, often through an exchange for a smaller number of newly issued bonds.
- Some bonds are callable, meaning that even though the company has agreed to make payments plus interest towards the debt for a certain period of time, the company can choose to pay off the bond early. This creates reinvestment risk, meaning the investor is forced to find a new place for his money, and the investor might not be able to find as good a deal, especially because this usually happens when interest rates are falling.

Arguments against bonds

Some theories of economics, notably Islamic economics and green economics, argue that the overall effect of any debt on ecosystems and society is so negative that no bond should have any legal status. These theories are part of a broader category called creditary economics. In these, there is no creditor, only a joint venture partner or investor. Remnants of this same belief still exist even today in Western finance and legal precedents, as seen in usury laws, mortgage laws, and also as seen in perpetual bonds. At the time of issue during the late Middle Ages, many perpetual bonds were sold not as debt instruments but rather as an income stream or annuity instrument. One was buying a future income, not lending money. By this thinking, no interest was paid on perpetual bonds, despite the existence of a yield for such financial instruments.

External links

- [http://bonds.yahoo.com/bond_ed.html Bonds 101], bonds.yahoo.com
- [http://bonds.yahoo.com/glossary1.html Bond Glossary], bonds.yahoo.com
- [http://www.bondknowledge.com/ BondKnowledge.com], Bond information and resources
- [http://thisMatter.com/money/Bonds/Bonds.htm Complete Introduction to Bonds] — A complete, but concise, tutorial about bonds in a one-page format with sidebars, illustrations, formulas, examples, and clear definitions of basic terms.
- [http://invest-faq.com/articles/index-bonds.html Invest FAQ:Bonds:Index]
- [http://www.investinginbonds.com InvestingInBonds.com], lots of good information for beginning and advanced bond investors.
- [http://www.greekshares.com/bonds.asp Investing in Bonds]
- [http://www.dmo.gov.uk/ UK Debt Management Office]
- [http://www.deutsche-finanzagentur.de/eng/ German Finance Agency]
- [http://www.jwsuretybonds.com/surety_info.htm Surety bond information by type.]

Math

- [http://www.gummy-stuff.org/bonds.htm Bonds]
- Category:Accounting ja:債券

Mortgage

A mortgage is method of using property as security for the payment of a debt. Technically the term mortgage (from Law French, lit. "dead pledge") refers to the legal device used in securing the property, but it is also commonly used to refer to the debt secured by the mortgage. In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as ships) and in some cases only land may be mortgaged. Arranging a mortgage is seen as the standard method by which individuals or businesses can purchase residential or commercial real estate without the need to pay the full value immediately. In many countries it is normal for home purchase to be funded by a mortgage. In countries where the demand for home ownership is highest, strong domestic markets have developed; notably in Great Britain, Spain & USA.

Participants and variant terminology

Each legal system tends to share certain concepts but varies in the terminology and jargon they use. In general terms the main participants in a mortgage are:
- The creditor - variously referred to as the mortgagee or lender. They have legal rights to the debt secured by the mortgage and often make a loan to the debtor of the purchase money for the property. Typically creditors are banks, insurers or other financial institutions who make loans available for the purpose of real estate purchase.
- The debtor(s) - variously referred to as the mortgagor(s) or borrower(s). They must meet the requirements of the mortgage conditions (and often the loan conditions) imposed by the creditor in order to avoid the creditor enacting provisions of the mortgage to recover the debt. Typically the debtors will be the individual home-owners, landlords or businesses who are purchasing their property by way of a loan. Other Participants Due to the complicated legal exchange (conveyance) of the property one or both of the main participants are likely to require legal representation. The terminology varies with legal jurisdiction, see: lawyer, solicitor and conveyancer. Due to the complex nature of many markets the debtor may approach a mortgage broker or financial adviser to help them source an appropriate creditor typically by finding the most competitive loan. The debt is sometimes referred to as the hypothecation.

Legal Aspects

There are essentially two types of legal mortgage:
- Mortgage by demise - The creditor becomes the owner of the mortgaged property until the loan is repaid in full (known as "redemption"). This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption. Th

Debt

Payment

Types of debt

Debt, inflation and the exchange rate

Inflation indexed debt

Debt ratings, risk and cancellation

Risk free interest rate

Ratings and creditworthiness

Cancellation

Effects of debt

Arguments against debt

Levels and flows

See also

External links

Debtor

Creditor

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Standard of deferred payment

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Unit of account

Selecting the Unit of Account

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Currency

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Loan

See also

Bond

Issuers

Issuing bonds

Features of bonds

Types of bond

Trading and valuing bonds

See

Investing in bonds

Arguments against bonds

See also

External links

Math

Mortgage

Participants and variant terminology

Legal Aspects