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Government Bond

A government bond is a bond issued by the government denominated in the country's own currency. It is usually issued in order to finance infrastructure development in the country. In developed nations, government bonds are referred to as risk-free bonds because the government can raise taxes to redeem the bond at maturity. Though this is rare, some counter examples do exist where a government has defaulted on its domestic currency debt. ‘Risk-free’ typically means free of credit risk, however, other risks such as currency risk for foreign investors (i.e., lower returns due to the decrease in a currency’s value) and inflation risk (i.e., where the principal repaid at maturity will have less purchasing power than anticipated) still exist. By purchasing government bonds, investors are putting their faith in the stability, credit worthiness, and administrative capability of a government.
 
The different types of government bonds listed on the exchange are:
·         Federal
·         State (sub-national)
·          Local/Municipal/City (sub-national)
 
Classifications of corporate bonds listed on the exchange include:
·         Redeemable – can be called (bought back) prior to maturity at a specified price
·         Non-redeemable – cannot be called (bought back) prior to maturity
·         Fixed-rate – fixed interest payments on a regular schedule
·         Zero-coupon – no periodic interest payments, but sold at a deep discount to face value

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