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Questions On Fixed Income Securities

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To properly analyze fixed-income securities, we established six major factors to consider. First is the security’s depth of the market. Have there been significant changes in the market since the financial crisis? The second factor is the main players in the market. This includes issuers and buyers of the financial instrument along with any other servicing institutions. The third reason, the purpose of the investment. Fourth is the current condition of the financial instrument’s secondary market. How active is it? Are there transaction costs? How are the instruments priced? The fifth factor is the risks in the investments. Last but not least is the sixth reason which is the financial instrument’s valuation. How should intrinsic value be…show more content…
GICs are not traded and nontransferable without the explicit written consent of the issuer. There are two basic types of GICs issued. The first is “participating” GICs which involve investors to receive a variable rate of return. Thus they are literally “participating” in the risks and rewards resulting from the fluctuations in the interest rate. When interest rates are expected to rise in the future, “participating” GICs become attractive to benefit from the expected rise in the interest rate. Different from “participating”, “nonparticipating” GICs offer a fixed rate of return. This makes “nonparticipating” GICs more attractive when market interest rates are high to lock in the high fixed rate of return for the life of the investment contract. The change in the market for guaranteed investment contracts since the financial crisis continues to be mixed. GICs have become as popular as other investments like stocks and bonds. With the rising of interest rates and decreasing concerns about the credit merit of the insurance companies issuing the contracts, traditional GICs have had a steady growth within the last decade. The total amount of new GIC business done in 1982 was about $8 billion. Today, the annual figure is somewhere between $35 and $40 billion Guaranteed Investment Contracts are marketed by insurance companies, which are considered nonbank financial institutions. They are usually Collective Investment
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