When studying for the Series 7 exam, it is important to know the different types of debt instruments. This will help you better understand how the securities industry works and what specific products are offered. In this blog post, we will discuss the different types of debt instruments and provide examples for each one. We hope that this information will help you pass the Series 7 exam and start your career as a licensed securities representative!
The different types of debt instruments can include treasury securities, agency securities, corporate bonds, and municipal securities. These instruments may be classified according to their underlying issuers, such as government agencies or corporations, or by the expected repayment sources for the debt.
Treasury securities is by far the most common type of debt instrument. This can take many forms, including government bonds and bills, as well as receipts, notes, and bonds issued by corporations or municipalities. Receipts are typically short-term obligations that pay a fixed rate of interest and can be redeemed at any time. Notes are slightly longer-term debt securities, with a life of one to 10 years, that are generally paid at a fixed rate of interest. Bonds typically have longer terms, ranging from 10 to 30 years, and often pay a variable rate of interest that is tied to market conditions.
Another popular form of debt instrument is agency security, which may include asset-backed and mortgage-backed securities issued by government agencies such as Fannie Mae or Freddie Mac. Agency securities are generally considered lower risk than other types of debt instruments due to their implied government backing.
Corporate bonds are another common type of debt instrument, typically issued by larger corporations. These bonds can come in a variety of different forms and are generally designed to be repaid over a long period of time. Corporate bonds may be unsecured, meaning that the corporation does not have any collateral backing the debt, or secured, meaning that the corporation has pledged a specific asset or assets to guarantee repayment of the debt.
Municipal securities are another type of debt instrument that may be issued by state or local governments. These securities can include general obligation (GO) bonds, which are backed by the full faith and credit of the government issuer, as well as revenue bonds, which depend on a specific source of income to repay the underlying debt. They may also include taxable municipal securities, which are issued by state or local governments on behalf of private companies or individuals.
Other types of debt instruments may include short-term obligations such as commercial paper and certificates of deposit, as well as more specialized securities like money market instruments and bankers’ acceptances. Commercial paper is a short-term debt instrument that is issued by large corporations with strong credit ratings, while certificates of deposit are typically longer-term debts backed by a bank. Other types of debt instruments may include special-purpose bonds, such as those issued to finance projects involving public infrastructure or transportation, and taxable municipal securities, which are offered to investors who do not qualify for tax-exempt municipal bonds. Regardless of the type of debt instrument you are dealing with, it is important to understand how they work and what factors affect their pricing and value in order to succeed as a licensed securities representative.
These and many other topics will be covered on the Series 7 exam. Achievable offers a comprehensive Series 7 FINRA practice exam to prepare you for the Series 7 Exam. Check out Achievable’s website to get started today.
