Sunday 11 December 2016

Shaken and stirred: gambles sometimes don't pay

Published 09/10/2010 | 05:00

So what do bondholders and James Bond have in common?

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Most people would say, not a lot actually.

But if you consider the recurring themes of a James Bond movie, then you could start seeing some similarities.

For instance, there is nearly always a segment in a Bond film where 007 takes part in a poker session.

Invariably, he is down to his last chips when, through luck or skill or a combination of both, he manages to save the day with a royal flush. He gambles, and he wins.

Bondholders, too, often take gambles, but they don't always pay off. Simply put, bonds are loans. Businesses and countries raise funds by issuing bonds to whoever wants to buy them.

Interest

When you buy a bond, you're lending money to the organisation or country that issues it.

The company or country, in return, promises to pay interest payments to you for the length of the loan.

How much and how often you get paid the interest depends on the terms of the bond.

When the bond reaches the date of maturity, the issuer repays the principle, or original amount of the loan.

For the lender, a bond is a kind of investment. But if a business or a country gets into trouble -- or even goes bust -- the bondholder has lost the gamble and is left nursing a potential major loss.

Wouldn't happen to James Bond . . .

Irish Independent

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