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Meaning / Definition of

U.S. Treasury Securities

Categories: Bonds and Treasuries,

Negotiable U.S. Government debt obligations, backed by its full faith and credit. Exempt from state and local taxes. U.S. treasury securities are issued by the U.S. government in order to pay for government projects. The money paid out for a treasury bond is essentially a loan to the government. As with any loan, repayment of principal is accompanied by a specified interest rate. These bonds are guaranteed by the "full faith and credit" of the U.S. government, meaning that they are extremely low risk (since the government can simply print money to pay back the loan). Additionally, interest earned on U.S. treasury securities is exempt from state and local taxes. Federal taxes, however, are still due on the earned interest. The government sells U.S. treasury securities by auction in the primary market, but they are marketable securities and therefore can be purchased through a broker in the very active secondary market. A broker will charge a fee for such a transaction, but the government charges no fee to participate in auctions. Prices on the secondary market and at auction are determined by interest rates. U.S. treasury securities issued today are not callable, so they will continue to accrue interest until the maturity date. One possible downside to U.S. treasury securities is that if interest rates increase during the term of the bond, the money invested will be earning less interest than it could earn elsewhere. Accordingly, the resale value of the bond will decrease as well. Because there is almost no risk of default by the government, the return on treasury bonds is relatively low, and a high inflation rate can erase most of the gains by reducing the value of the principal and interest payments. There are three types of securities issued by the u.s. treasury (bonds, bills, and notes), which are distinguished by the amount of time from the initial sale of the bond to maturity. also called Treasuries.

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Definition / Meaning of

Floating Rate

Categories: Credit and Debt,

A debt security or corporate preferred stock whose interest rate is adjusted periodically to reflect changing money market rates is known as a floating rate instrument. These securities, for example, five-year notes, are initially offered with an interest rate that is slightly below the rate being paid on comparable fixed-rate securities. But because the rate is adjusted upward from time to time, its market price generally remains very close to the offering price, or par.When a nation's currency moves up and down in value against the currency of another nation, the relationship between the two is described as a floating exchange rate. For example, the us dollar is worth more japanese yen in some periods and less in others. That movement is usually the result of what's happening in the economy of each of the nations and in the economies of their trading partners. A fixed exchange rate, on the other hand, means that two (or more) currencies, such as the us dollar and the Bermuda dollar, always have the same relative value.

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