Background of the study:

The financial market is a specialized market that is responsible for channeling financial resources
from the surplus unit (savers) to the deficit unit (those who needed additional fund)to carry out
some form of economic activities. Financial market play an important role in the mobilization of
financial resources for long term investment through financial intermediation. A well functioning
financial market allocates the resources and improves the efficiency of financial decision that
leaders to the better allocation of resources.

When we talk about Nepal, the financial market is largely dominated by bank and other financial
institution. The Nepalese financial market is largely concentrated on the equity and loan
financing. The bond market which comprises of the government and corporate bonds covers a
very small portion of the market. Although the insurance of the bond is feasible and beneficial
for the organization, the growth and development of the Nepalese bond market is in a slow pace.

The project focus on the current scenario of bond market in Nepal and the reasons behind
preference of the bank loan rather than debt instruments like bond. Also the challenges for the
development of bond market are explored through the qualitative and quantity analysis. The
understanding of the hindrance have helped generate some suggestion for the various related
sector like regulatory bodies, issue, investors and traders so that they can contribute to the
growth bond market. A seminar on ‘Bond Market in Nepal and Currency Risk’ was conducted
on 23rd december,2016 which was for the 3rd year Finance and Banking group to get an insight
about the current scenario of bond markets in Nepal.

Dr. Manoj Shahi . CFA was the first speaker who highlighted the impact of bond market in a
developing country like ours, talking its history, current scenario and the future aspects. As one
of the popular debt instruments in the developed nations, he mentioned how bonds play a very
important role in developing diversified investment environment which can act as a cushion
against risk from the concentration in the bank loans and equity market.

Similarly, the second session was forwarded to Mr. Hemanta Bashyal, CFA, and FRM, who
discussed on the various currency risks to the national economy including the recent
demonetization in India. He also drew some light on how the investors or companies that have
business operations across national borders are exposed to currency risk that may create
unpredictable profit and loses. The major topic discussed here was the currency risk to the
economy.

1
Profile of the organization:
A bond is a long-term contract under which a borrower agrees to make payments of interest and
principal on a specific date to the holders of bond. Generally, investors have several choices
while investing in bonds. However, bonds can majorly be classified into four types, namely
Treasury bonds, corporate bonds, Municipal bonds and foreign bonds. Treasury bonds are also
called government bonds which are issued by federal government. It is assumed that government
bonds do not have default risk but it is not free from interest rate risks. Corporate bond as the
name implies are issue by corporation. Unlike treasury bonds, corporate bonds are exposed to
default risk. Municipal bonds are issue by state and local government and are also exposed
default risk. Foreign bonds are issue by foreign government and foreign corporations. Foreign
bonds are exposed to default risk and in addition the risk exists if the bonds are dominated in a
currency other than that of investor’s home currency. All this bonds are generally traded in a
market which is called bond market. Among the different types of bond issued, the development
bond is most popular form of government and the foreign bond is the least popular one among
the four types of bonds. Even the listed securities compose of the development bond only. The
trading of those bonds occurs very less due to which the yield curve generation and price
discovery is a difficult process.

The bond market in Nepal is relatively underdeveloped where only a tiny corporate bonds and
government bond are under operation. The prices of these bonds are not market oriented i. e, not
traded in secondary market. Currently, Nepal Rastra Bank issues five types of bond to meet
short and long term needs of fund. These instruments are: Development bond, National saving
bond, Citizen saving bond, foreign employment bond and treasury bond besides these
government securities some corporate bond are also issued to fulfill various long term financial
needs.

2
Objective of the study:
Objectives of the study.The study of Nepalese bond market has been conducted with the
following objectives

To understand the current situation of bond market and the actions taken for development

To know the challenges for growth of Nepalese bond market.

To analyze the bond market in Nepal

Rational of the study:

This report is prepared to analyze the bond market in Nepal. This study will be usable and
valuable to the various parties or group, institution and individual. This study will be useful for
the following groups and individual:

i) Further researcher.
ii) BBS fourth year student who are new generation.
iii) To researcher (myself).
iv) To the investor.
v) To the creditor.
And this study will be equally useful to the other readers, student of related subject and
other people.

Review of literature:
Review of the literature is important part of studies. For this purpose of the study, this study has
been conducted with the objectives of understanding the current situation and challenges for the
Nepalese bond market through the perspective of issuers, traders and experts in the financial
market and comparison with some of countries in south Asia previous year student’s report
writing, websites, books, Google, some research report related with this topic and all resources of
data related with this topic.

3
Research methodology:
The research methodology is the process of arriving to the solution of the problems through
planned and systematic dealing with the collection, analysis and interpretation of facts and
figures. The researcher has used a descriptive and analytical research design. It is based on
secondary data. The various statistical tools are to be used for the interpretation of the data.This
study is mainly descriptive in nature i.e. analyzing the view and options of concerned people in
Nepalese bond market. It also include quantitative analysis to support qualitative perspective of
bond market. Finally, based on the finding and analysis recommendation have made.

Research Design

Descriptive research design is that type of research design which aims to search the truth or
evidence related to any subject matters and events, study them in depth and describe broadly
about the already exist issue. This research design is very useful to identify the problems, to
know the validity of present condition, to compare and evaluate the future action plan. It is a
descriptive method but it includes the scientific method such as the data collection method,
classification of data, explanation, comparison and evaluation of the result etc.

Population and Sample

Population refers to the total numbers of events, activities, number, persons etc. of the desired
area of research. Sample is taken from detail analysis. It provides information about the sample
and population of the research work.

Type of Data

Information or facts collected through record, observation and measurement is known as data.
Data are the essential to provide the evidence to the research. Data collection is important work
for research. Data helps to find out actual results. Generally data are classified as primary and
secondary data.

4
Primary Data: - Data that has been collected by the researcher himself/herself as per the
objective of the research is knows as primary data. It is more costly then secondary data because
the primary data has collected firstly at that time there may a lot of resources to obtain the
information. Primary data can be collected by direct interview, questionnaire and direction
observation.
Secondary Data: - If a researcher use the data developed by other in the past for their own
purpose is known as secondary data. Secondary data can be obtained from published and
unpublished sources. It is use for the next time to get the result and compare them with each
other. This research has basically depending on secondary data.
Sources of Data
Sources of data refer to the possible place from where the required data can be extracted . It can
be categorized as primary and secondary data source. Primary data is original data source, that is
one in the data are collected firsthand by the research. The secondary data source is the source
from where we can extract the data from already public books, report, and do on. And others
official website and related topic.

Limitation of the study:

This study is simply conducted for partial fulfillment of the requirement for the degree of the
bachelor in business studies (BBS). And only the secondary data is use and analyzed which
could not disclose the actual result. The other limitation of the studies is listed below:

i) Estimation based on work order based on available data.

ii) Due to reason of privacy of the organization, this study could not obtain some valuable
information.
iii) This study has covered only the last three fiscal year data.
iv) This study based on only analysis of bond valuation in Nepal.