The Equity and Bond Market

High School ・Business ・MLA ・4 Sources

To the government, the bond market is essential and important to request for and generate funds. The bond market plays a very important role in increasing income for the government. When the government issues bonds in the bond market, they are bought at an annual interest. In other words, in the bond market, bonds are sold or allotted to individuals or companies in the private sector in order to lend funds to the government. (Harford and Uysal 147). For investors, bonds are the safest form of investment since the government rarely defaults. In summary, the bond market helps to generate funds for the government.

If the government is faced with a budget deficit it would issue bonds in the bond market and the investors will purchase bonds which will, in turn, provide the government with additional funds (Rambures and Duenas 135).

What is the Role of Equity Market?

The equity market is similar to a bond market but more diverse than the bond market. The main role of the equity market is that it provides the corporate companies with the opportunity to source funds to expand and increase their business. On the equity market, the companies sell shares or part of ownership to investors (Watanabe et al. 129). The investors will assess the profitability and status of the company and would buy the shares with the expectations of making the profit at the end of the investment. When investors buy the shares, the company receives additional funds which will enable it to expand and increase its business. According to Ehrhardt and Brigham, the equity market helps the companies to grow and provide them with the opportunity of engaging with investors (8).

Works Cited

Ehrhardt, Michael C., and Eugene F. Brigham. Corporate Finance: A Focused Approach. Cengage Learning, 2015.

Harford, Jarrad, and Vahap B. Uysal. "Bond Market Access and Investment." Journal of Financial Economics, vol. 112, no. 2, 2014, pp. 147-163.

Rambures, Dominique, and Felipe E. Duenas. China's Financial System: Growth and Inefficiency. Springer International Publishing, 2017.

Watanabe, Akiko, et al. "The Asset Growth Effect: Insights from International Equity Markets." Journal of Financial Economics, vol. 108, no. 2, 2013, pp. 529-563.

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