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Bonds and Equities Defining Bonds and Equities Bonds are certificates of obligation or indebtedness, issued by governments and companies to raise funds repayable at interest over relatively long periods. Equities are investments exercised by purchasing a share in the ownership of a corporation; and are more commonly called stocks or shares (as in the stock market or share market). Bonds have a very favorable relationship with equities. Historically, when equity markets fell, bonds had gone up in value, partially offsetting the fall. When equity markets rise, interestingly, high quality bonds also tend to rise, although to a lesser extent. Therefore for an investor with equity portfolio wanting to reduce portfolio volatility or make the portfolio less susceptible to a fall in equity markets bonds are the most appropriate. Bonds generally pay a much higher income than high quality government and corporate bonds to compensate for higher risk. Similar to equities, bonds tend to perform best when economic growth is strong with low stable interest rates. In such an environment the ability of these companies to pay interest and repay their bonds on the maturity date is greatly enhanced. [Z. Bodie, 2000] Investment in bonds and equities, usually via stock-markets and other exchanges for financial instruments. So-called "portfolio investment" is usually relatively easy to re-sell; hence this type of investment can flow relatively easily into and out of a country's stock-markets. This can lead to volatility in share-prices and levels of capital availability. What’s the difference? Equities are shares listed on the stock exchange. Their prices are influenced by the underlying performance of the companies, the sectors in which they operate ... ...easures pertaining to the micro stability of the intermediaries can be subdivided into two categories; general rules on the stability of all business enterprises and entrepreneurial activities, such as the legally required amount of capital, borrowing limits and integrity requirements; and more specific rules due to the special nature of financial intermediation, such as risk based capital ratios, limits to portfolio investments and the regulation of off-balance activities. [White 1996] References Z Bodie, A Kane and A J Marcus. "Investments". 5th Ed. Irwin 2000. E J Elton and M J Gruber. "Modern Portfolio Theory and Investment Analysis". John Wiley 5th Edition 1995. White L., 1996, "International Regulation of Securities Markets: Competition or Harmonization?† in Lo A. (ed), The Industrial organization and Regulation of the Securities Industry, NBER, Cambridge