Debt is a financial asset which gives the investor (lender) the opportunity to receive interest payments and repayment of principal (face value/par value) based on the terms established in a loan contract (prospectus). Debts instruments are issued by both Government and Corporate Institutions. Government issues debt instruments to finance fiscal deficits due to excess governments spending over its tax revenue mobilization. Corporate Institutions also raise funds through the debt market to finance their institutional activities such as the acquisition of new machines etc. Unlike corporate debt securities with Government debt securities there is complete absence of default risk because the solvency rests on the government. The following debt securities are issued in Ghana
1. Treasury Bills
Treasury Bills are short-term debt or money market instruments (securities) issued by the Government of Ghana with a maturity of less than one year. They commonly have maturities of 91 days and 182 days. Treasury Bills are issued at discount from par, which means that rather than making fixed interest payments like conventional bonds, income is earned by the difference between the face value and the cost of purchase. Bank of Ghana also periodically issues short –dated bills to support its monetary operations and Cocobod for the purchase of cocoa in Ghana.
2. Treasury Notes
Treasury Notes are interest bearing securities which are sold at par and with maturity term ranging from one year to two years. Investors earn interest semi-annually at a fixed rate. On the redemption date the investor received the last coupon payment together with the nominal value of the securities purchased.
3. Treasury Bonds
Treasury Bonds are medium term debt instruments (securities) issued by the Government of Ghana and sold to individuals or companies to raise funds for a specified time at a fixed or variable interest rate. The bonds have maturity periods exceeding two years. Presently the 7 Year bond is the longest term security issued in Ghana. Bonds normally make fixed interest payments bi-annually (i.e. every six months) to the holder.
4. Corporate Bonds
Corporate Bonds are debt securities issued by organisations so as to raise funds for several reasons depending on the organisation's objectives to finance an ongoing task, to purchase new equipment or to expand business etc. Corporate Bonds normally have a redemption period exceeding one year and can either have a floating or fixed coupon rate.