Bonds are long-term debt instruments issued by either a corporate or government entity for a specific period of time and interest rate. Funds stemming from the issuance of this instrument are used to finance the activities of the issuing entity. Tenure for the security ranges from a year and can extend to more than ten years. Bonds are classified into two types based on the issuing party, namely corporate bonds, and government or more commonly known as Treasury bonds.
In the Philippines, majority of the bond trading transactions are processed in the Philippine Dealing and Exchange Corporation (PDEX), the local exchange of the bond market, through its PDEX platform. The PDEX platform also covers Treasury bill transactions. Treasury bill, or simply T- bill, is an obligation of the national government to be repaid in a year or less. T-bills do not bear interest and are sold at discount with its full face value redeemable at maturity. Maturities for the security are 91-, 182-, and 364-days.
Investments in Treasury bonds and bills are considered risk-free since these securities are guaranteed by the issuing government. The issuing government will not default on its debt obligations as it may employ various means to generate cash to pay back the issued instrument.
Trading currencies in the Foreign Exchange Market (FOREX), involves the purchase of one currency for a different currency. Considered as the most liquid market in the world, the FOREX market determines the relative value of currency and assists in international trade and investment. Though largely composed of speculative traders, market participants in the FOREX market include governments, central banks, financial institutions, and individuals.
In the Philippines, the Bangko Sentral ng Pilipinas (BSP) maintains a floating exchange rate, wherein the forces of supply and demand determine the prevalent exchange rate in the market. Philippine banks engage in spot, outright forward, and swap transactions for the peso-dollar or other third currency supported by the BSP. At present, the Philippine Dealing System provides the platform, PDEX, for the peso-dollar trading between member banks of the Bankers Association of the Philippines and the BSP, while Reuters Dealing and Bloomberg Financial Services are used for third currency trading.
Time Deposit refers to a savings account or a certificate of deposit offered by banks which pays a fixed interest rate until a specified maturity date. Funds from a time deposit are held by the bank for a fixed period and carry with it a specified interest rate. Time deposits are relatively more liquid compared to other securities. However, it may not be withdrawn prior to its maturity date unless the depositor is willing to pay for fees/ penalties corresponding with early termination.
Commodities are raw materials used in the production of goods or services being provided to consumers. Commodities include agricultural products, metals, and energy products. Commodities are traded in the commodity exchanges through spot, futures, and options contracts.
Derivatives are securities which derive their values from underlying assets. Considered as hedging instruments against high risk investments, derivatives are contracts between two or more parties priced by the fluctuations in the underlying assets. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indices. Derivatives are traded through futures contracts, options, and swaps. At present, derivatives are not traded in the Philippines.
Real Estate, in investment parlance, is a property purchased to generate income. Earnings from real estate are generated from rent, lease, or selling the property at a premium. Real estate properties include apartment buildings, condominium units, malls, houses for rent, and warehouses.