A government is usually the group or bureau of individuals governing a nation, usually a state. In other words, the government consists of elected leaders and officers who direct the public administration and the organization of society. The head of state is usually the most senior official in government. This person may be a governor, prime minister or a king or queen depending on the country’s system of government.
Some countries use their currency as the unit of account and regulate trade through central banks. Others use currency that is collected from citizens by taxation. In other countries, the government issues debt, such as government bonds, with a private lender. The country’s currency may be the reserve currency or the currency used in international trade.
There are two types of government securities. Government bonds are obligations of the state that are secured by the full faith and credit of the government. When the government issues debt, such as government bonds, the interest rates are fixed at a prescribed level. In exchange, the issuer pays interest that is based on a percentage of the total value of the obligation.
On the other hand, government securities that are denominated in foreign currencies are traded on foreign exchanges. On these exchanges, foreign governments sell and buy U.S. dollars with the goal of locking in a higher interest rate than they would receive if the money supply were constricted. Sometimes, central banks are authorized to intervene in the money supply to prevent a rate from falling too low.
The second type of government securities are coupon bonds. Unlike government bonds, which are usually issued by governments, coupon bonds are issued by private corporations. The money market funds that issue these securities receive payments periodically. The coupon payment dates vary by date. For example, the payment of money owed on July 1st will be different than the payment of money owed on July second.
It is not difficult to see the similarities between government bonds and money market funds. Both are interest products issued by issuers with the goal of locking in a higher interest rate over a period of time. Of course, there are many differences between the two. Money market funds are subject to several governmental factors such as fluctuating interest rates in foreign countries, adverse inflation, and unexpected changes in the tax structures of many countries. Government bonds, on the other hand, are issued by virtually all countries.