Investment in debt securities is a type of debt-based investment. Investing in debt securities allows you to earn interest on the money you invest. Interest payments on a debt security are based on the value of the underlying asset and the interest rate that the debt security carries. However, investors must be aware of certain risks that can arise.
Debt securities are sold and bought periodically and are reported at their fair value. If the price of the security falls below that price, the entity must determine whether it can hold it until its value increases. In other words, the entity must determine whether it can hold the debt security until it reaches its maturity date.
Debt securities are issued by companies and represent the right to receive principal and interest at a future date. These securities include debt notes, bonds, convertible bonds, redeemable preferred stock, and other investments that are obtained by securitizing financial instruments. Debt securities are generally not traded in the open market but are classified as trading investments.
The principal amount and interest payments of fixed rate debt securities are payable in U.S. dollars. However, some debt securities are payable in foreign currencies. In these cases, it may be necessary to convert the principal amount into a different currency. Fortunately, there are exchange rate agents. However, you must note that the exchange rate agent is not an affiliate of the dealer offering the investment.