Question

Write short notes on:

(A) Bond

(B) Trade credit

(C) Inter-corporate deposits.

Answer 1

(A) Bond :

• Bonds are issued just like debentures to obtain capital.
• Bonds are borrowed capital and hence the debt of the company. The bond holders are creditors of the company. Bond holders get interest at specific rate and time. At the end of pre-fixed duration the company returns the borrdwpd capital to the bond holders.
• Generally, bonds are costlier than debenture. They are a good source of finance for long-term large-sized projects.
• Bonds can be issued by companies, municipality or even government and are called corporate bonds, municipal bonds and government bonds respectively.
• Bonds are known by the project for which they are issued. For example, bonds issued by government for Sardar Sarovar project were known as Sardar Sarovar Bond.

(B) Trade credit :

• When a businessman buys raw material, finished goods, etc. from procedures or traders and pays after a pre-decided time he is said to have obtained trade credit.
• The businessman is said to have purchased on credit from other businessmen for some time. This helps the purchasing businessman save his working capital and use it elsewhere.
• The businessman than pays the money after a decided time. Here, the creditor
  does not give the money directly but gives goods on credit and satisfies the short-term capital need.

(C) Inter-corporate deposits :

• When a company having surplus funds deposits a part or whole of it in another company it is called inter-corporate deposit.
• Usually these kinds of transactions take place between major and minor companies. Such transactions may also take place between various companies owned by one group. For example, Tata group owns Tata Teleservices and Timex watches. In need Tata Teleservices may provide inter-corporate deposit to Timex.
• The rate of interest and duration of deposit is decided by an agreement. Compared to borrowing from other sources this form of borrowing is an easier option.