Commodity-linked bonds

a potential means for less-developed countries to raise foreign capital
  • 34 Pages
  • 0.72 MB
  • 2735 Downloads
  • English
by
Bank of Canada , Ottawa
Debts, Public -- Developing countries -- Econometric models., Commodity-backed bonds -- Developing countries -- Econometric mo
Statementby Joseph Atta-Mensah.
SeriesBank of Canada working paper -- 2004-20, Working paper (Bank of Canada) -- 2004-20.
ContributionsBank of Canada.
The Physical Object
Paginationv, 34 p. ;
ID Numbers
Open LibraryOL20139745M

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Get this from a library. Commodity-linked bonds: a potential means for less-developed countries to raise foreign capital. [Joseph Atta-Mensah; Bank of Canada.]. types of commodity-linked bonds and a conv entional bond, which implies that the current market values of the two instruments must be the same.

Using equations (9) and (22), and setting Q 0 to F,Author: Joseph Atta-Mensah.

Download Commodity-linked bonds PDF

Downloadable. The author suggests that commodity-linked bonds could provide a potential means for less-developed countries (LDCs) to raise money on the international capital markets, rather than through standard forms of financing. The issue of this type of bond could provide an opportunity for commodity-producing LDCs to hedge against fluctuations in their export earnings.

Commodity-Linked Bonds: A Potential Means for Less-Developed Countries to Raise Foreign Capital by Joseph Atta-Mensah Monetary and Financial Analysis Department Bank of Canada Ottawa, Ontario, Canada K1A 0G9 [email protected] The Cited by:   At the maturity, the owner of a commodity-linked bond has the right to receive the face value of the bond and the excess amount of spot market value of the reference commodity bundle over the prespecified exercise price.

This payoff structure is an important characteristic of the commodity-linked bonds. In this paper, we derive closed pricing formulae for the commodity-linked by: bond).

These commodity bonds are called commodity-linked bonds. It is the quantity-denominated return structure Commodity-linked bonds book distinguishes commodity bonds from conventional bonds.

With a conventional bond the nominal return is known but the real return is not. In respect of the commodity bond, both nominal and real monetary returns are unknown.

Other Commodity-Linked Issues 37 Notes 38 3. The Demand for Commodity Bon;' 39 Moctar A. Fall The One-Consumption Good Case 39 The Determinants of the Demand for Commodity Bonds 48 The Mulngood Case 51 4. A Review of Methuds for Pricing Commodity-Linked Securities 56 Tbeophilos Priovolos Case 1: Uncertain Commodity Price Commodity Linked Notes $_____ Commodity Linked Notes, due April [25],Linked to WTI Crude Oil • The notes are our unsecured senior notes.

• We will not pay interest on the notes. • At maturity, you will receive the principal amount of the notes. In addition, you may receive a. Commodity-Linked Bonds. An early example of cormmodity-linked finance was the decision by the Con-federate States of America in to issue cotton bonds.

The economy of the Confederacy relied heavily on cotton. To finance the war effort, the govern-ment issued a bond with payoffs linked to cotton prices. Commodity-linkedFile Size: 1MB. Commodity Linked Securities – Bonds Commodty linked bonds are securities offered by governments whose yield depends on the price of a specific commodity or a global inflation index.

Historically, governments offered loans with coupons Coupon Rate A coupon rate is the amount of annual interest income paid to a bondholder, based on the face. the commodity linked bond, the commodity referenced to the the commodity linked bond, the value of the firm, default free government discount bond and security I.).

Exercise price of the commodity referenced to the commodity 1 inked bond. Face value of the commodity linked bond. Value of a European call option on P with an exercise price of F. Index-Linked Bond: An index-linked bond is a bond in which payment of interest income on the principal is related to a specific price index, usually the.

Commodity-Backed Bonds: A commodity-backed bond is an investment term referring to a type of bond whose value is directly related to the price of a specified commodity. Most bonds Author: Jason Fernando. This new edition also covers the accounting treatment of special derivatives situations, such as raising financing through commodity-linked loans, derivatives on own shares and convertible bonds.

Cases are used extensively throughout the book, simulating a specific hedging strategy from its inception to maturity following a common pattern. Downloadable. The commodity-linked bond offers a potential means for producers of primary goods both to raise capital and to hedge against output price risk.

Commodity bonds are distinguished from conventional bonds in that their return structure is denominated in quantities of the underlying commodity. Optimal levels of bond issues and commodity production are derived, first for producers.

A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a single security, a basket of securities, options, indices, commodities, debt issuance or foreign currencies, and to a lesser extent, derivatives.

2 Formal definitions. Product design and manufacture. Books to Borrow. Top American Libraries Canadian Libraries Universal Library Community Texts Project Gutenberg Biodiversity Heritage Library Children's Library. Open Library.

Featured movies All video latest This Just In Prelinger Archives Democracy Now. Occupy Wall Street TV NSA Clip Library. A bond whose redemption value is linked to the price of a commodity. Typically, issuers whose income stream is closely tied to commodity earnings issue these bonds.

Source Publication. This chapter identifies the following avenues to get exposure to commodities: purchase of physical commodities (and face storage and insurance costs) futures; options on futures; commodity index investing (with the choice of many indexes); and commodity‐linked bonds.

Commodity-linked bonds are bonds in which the payment meant for investors is dependent to a certain extent on the price level of a commodity such as crude oil, silver, or gold at maturity.

Debt warrant bonds are securities that allow holders to buy additional bonds from the issuer at the same price and yield as the initial bond.

Payment in Kind (PIK) Bonds. What arePIK Bonds.

Description Commodity-linked bonds PDF

Value Earnings per Share & Dividend per Share PE Ratio and PS Ratio Terminologies in Debt Market Price to book value What is a callable bond 26 Several Non-Banking Finance Companies (NBFCs) have issued PPNs titled Equity Linked Bonds (ELBs) or Commodity Linked Bonds (CLBs. Its strategy is to gain direct exposure to commodities through commodity-linked bonds tied to the value of the GSCI.

By doing this it is able to put up just one-third of its assets to gain % commodity exposure. Likewise there have been a number of papers written on commodity-linked bonds which are bonds issued with option or option-like structures linked to the price of a specific commodity; (see, for Author: Calum Turvey.

Commodity-Linked bond Definition. A bond in which payment to the investor is dependent to a certain extent on the price level of a commodity, such as crude oil, gold, or silver, at maturity. An agricultural commodity is defined in Commission regulation (zz) as a commodity in one of four categories: (1) the enumerated commodities listed in section 1a of the Commodity Exchange Act, including such things as wheat, cotton, corn, the soybean complex, livestock, etc.; (2) a general operational definition that covers: “All other commodities that are, or once were, or are derived.

Example – Risky commodity-linked bond • A silver mining company offered bond issues backed by silver. Each $1, bond is linked to 50 ounces of silver, pays a coupon rate of % and has a maturity of 15 years.

• At maturity, the company guarantees to pay the holders either $1, or the market value of 50 ounces of silver. The Trade Reporting and Compliance Engine (TRACE) is the FINRA-developed vehicle that facilitates the mandatory reporting of over-the-counter secondary market transactions in eligible fixed income securities.

All broker-dealers who are FINRA member firms have an obligation to report transactions in corporate bonds to TRACE under an SEC-approved set of rules. Modern risk management techniques can help countries avoid the financial risks that affect future cash flows and long-term plans.

They provide a hedge against profit fluctuations caused by changes in interest rates, exchange rates, and commodity prices. This easy-to-use guide examines the risk management tools developing countries have used successfully, including futures, options, forward Reviews: 2.

Under U.S. GAAP, if the bonds are converted, liabilities are decreased by the book value of the bonds, and the equity is increased by the same amount.

Details Commodity-linked bonds FB2

Debt/Equity = ; Equity = $4, commodity-linked bonds, and commodity-linked equity are the diversification benefits.The type, maturity and payoff features of the instrument(s) that is located in derivative component. (e.g. if it is an option, its underlying asset (fx, equity, interest rate, commodity or hybrid), its type (call & put, vanilla & exotic), its strategy (bearish, bullish, neutral) and its maturity affects the structured products payoff & risk level).Commodity-linked bonds can hedge longer-term risk, and often have a natural ultimate counter-party in multinational corporations that depend on the commodity as an input.

(3) The well-documented pro-cyclicality of fiscal policy among commodity exporters can be reduced by insulating official forecasters against optimism bias, as Chile has shown.