Debt and Share Markets

a) Why would a borrower choose to finance with a bond issue instead of a share issue?

b) What are the general benefits and risks to an investor of investing in a bond compared

to investing in a share?

c) Like any other financial markets, bond issuers constantly develop and introduce innovative instruments with new features. List and explain three important innovations in the bond markets, in terms of what they are, when were they developed and are they likely to grow importance? (Hint: asset-backed bonds, index bonds, climate bonds, forest bonds etc.)

d) What is credit rating? Is credit rating of the borrower important in bond markets? Discuss the differences between investment-grade bonds, speculative-grade bonds and junk bonds.

e) Are there credit ratings in share markets also? If yes, are they important? Why?

f) Identify the most important credit rating agencies.

g) What do bond rating agencies base their quality ratings largely on?

h) Credit rating agencies were criticised for the role they played during the Global Financial Crisis (GFC). Briefly identify why they were criticised.