Compare and Contrast the Long-Term Corporate Debt (corporate Bond ) with the Preferred Stock from an Investor´s Perspective

1. Compare and contrast the long-term corporate debt (corporate bond ) with the preferred stock from an investor´s perspective.

Corporate bonds is how firms borrow directly from the public. They are similar in structure to Treasury. But the risk of default is higher. There are different types of bonds. Secured bonds, which have specific collateral backing them in the event of bankruptcy, unsecured bonds ( debentures ), which have no collateral; and subordinated debentures, which have a lower priority claim to the firm´s assets in the case of bankruptcy. Besides, corporate bonds can come with options attached. Callable bonds, the firm has the right to repurchase them at a stipulated price; and convertible bonds, which give the bondholder the right to convert bonds into a stipulated number of shares.

On the other hand, preferred stock has features similar to both equity and debt. Preferred stockholders receive a fixed amount of money each year. This is cumulative, unpaid dividends cumulate and must be paid in full before any dividends may be paid to holders of common stock.

Some differences are; firms have to make the interest payments by contract. If not bankruptcy proceedings.

Tax treatment differs in bonds are tax deductible but preferred stock is considered as dividends. However, corporation can exclude 70% of dividends received of their corporate tax.

Preferred stock ranks after bonds in terms of the priority of its claims to the assets of the firm in the case of corporate bankruptcy.

1. What are the differences between a domestic bond, a euro bond and a foreign bond?

Domestic bonds are those which are issued and sold in the same country with the own country currency.

Foreign bonds are bonds issued in a country and sold in another in the currency of the the marketed country.

They are given names like Yankee bonds if marketed in the United States, or bulldogs if in the UK. Or Samurai bonds if marketed in Japan.

Eurobonds are bonds issued in one country and sold in another country in the currency of the issuer country.

1. What are the differences between the Federal Funds market and the LIBOR market, from the perspective of U.S. banks?

Federal funds are funds deposited in the Federal Reserve bank by American banks. These banks which are member s of the Fed are required to maintain a margin of the total deposits their customers have. If a member has a shortage should borrow money from other members at a rate of interest which is the federal funds rate. It is nowadays used a way of funding.

LIBOR market is the London Interbank Offered Rate at which the banks in London are willing to lend money among themselves. It serves as a benchmark for multiple transactions such as mortgages. The rate an individual would pay for a mortgage is tied to the LIBOR plus a percentage. Unlike the federal funds rate, LIBOR is determined by the equilibrium between supply and demand on the funds market, and it is calculated for five currencies and different periods ranging from one day to one year. Though three month is the most common.