Government paper, or bonds, which pay interest twice a year like normal bonds, and then boringly come due and pay off the principal that the U.S. government borrowed. Remember that, when the government issues tons of paper, i.e. sells lots of bonds, it raises cash for itself, sucking cash out of the system, sucking liquidity from the system... and vice-versa.
Related or Semi-related Video
Finance: What are Securities?39 Views
finance a la shmoop. what are securities? remember Linus? if not ask your parents.;
if you don't remember who the peanuts were, well then Linus was the guy always [man on stage]
carrying the blankie. and always sucking on his thumb .yeah ew gross .the blanket
was his security yeah see where we went with that his blanket was a something
that he relied upon, leaned on, nurtured. it was certainty, it was Bank. that secure
you see in the beginning of security? well it's not there by accident, so
financially speaking a security secures money. or at least value. when you buy a [100 dollar bill]
security, you give money to someone or something like a corporation. and in
return you get a promise of some value. securities come in two flavors generally
the first is equity ,or ownership. a share of stock is a security entitling you to
whatever percentage ownership and that company the share represents. like if you
bought 500 shares in a company with ten million shares outstanding well that
security represents ownership of five hundred divided by ten million or point [pie chart]
zero zero zero zero five percent of the company.
so that's equity. there's also debt as a security. that's the second thing. like
bonds the bond that Apple offered at four percent yield that pays off in ten
years? yeah that's a bond security. and note [woman sits behind computer]
that securities can carry different guarantees. that is the underlying
promise that the security represents or secures different elements. like a senior
bond security secures that those bonds will be paid off ahead of junior bonds
which will be paid off before say subordinated junior debentures. so you
can see that there are multiple classes and flavors and types of securities all
falling under this tent, which fortunately for everyone doesn't smell
like it's been sucked for four years. good grief. come back next [Linus holds his blankie]
time for another finance lesson a la shmoop and hopefully he'll have washed
this thing by then.
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