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Bond Market


Erland
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Overview

This will be a market similar to the trade section where nations will be able to issue and buy bonds. The bond issuer will receive a lump sum in cash and in return have repayments deducted from their net income per turn.
The value of 1 bond is $1000 per turn ($12000 per day) for a number of turns specified by the bond issuing nation (no greater than 90 days). They can only issue bonds up to a maximum of 50-80% or so of their net income. Each turn the holder of the bond gets the money paid from the issuer (principle + interest), and the value of the bond remaining decreases.

The motivation for this suggestion is to introduce a credit market with ingame mechanics so nations will be able to more easily secure loans and have repayments and interest deducted automatically. It would add more depth of gameplay by formalizing the current private loan system which allows nations not part of major alliances to secure loans, and allowing large nations to invest savings more easily.
The previous two suggestions for loan mechanics essentially made it risk-free, but with this proposal the risk is placed squarely on the shoulders of the investor. If the debtor defaults on the loan, the investor loses their money.

Private banks would still exist under this proposal: they would essentially act like investment companies, buying bonds they presume to be high quality investments (through credit checks, etc.) and then refinancing through issuing bonds with a lower interest rate, but which would be considered a much safer investment, as the risk is shared across a diversified portfolio.
Borrowers would also benefit from seeking out private banks if they needed a loan quickly, since competing on the open market might be time consuming, hard to get yourself noticed and potentially more expensive if you already have a good credit history with a bank.


Operation of the market

When players go to the bond market, they can create a trade which specifies how much they want to borrow, at what interest rate (monthly), and how long the bond will last in days. The current average market interest rate can be displayed for them.
This will give an estimate of how many bonds are required as shown below. The actual amount they want to borrow will be rounded up to reflect a whole number of bonds.

#bonds = amount * (1 + interestRate * lifetime/30) / (lifetime * 12000)

#bonds is rounded up to the nearest whole number
In addition to the amount of bonds, total amount to be repaid (face value) should also be displayed.

The way offers on the market will be displayed can be sorted by price (interest rate), total remaining value (face value), or days remaining.

interest rate = (((revenue per turn * remaining turns / offer given) - 1) * 360 / remaining turns)
total remaining value (per bond) = revenue per turn * remaining turns

Here revenue per turn is 1000, since that's how much money 1 bond provides per turn, and the offer given is per bond.

Similarly to resource trades, bonds could also be privately traded between nations, or between alliances with market sharing.


Partially repaid bonds and secondary markets

Each nation should be able to view a list of the bond packages they currently hold and have issued. When bonds change hands through resale, there might be multiple new bond holders, potentially creating multiple entries when a bond package is split up.
For example a table with fields below, where each row is a bond package:
date, issuer, holder, #bonds, remaining turns, purchase price, remaining value, interest rate, [action]

The last column, [action] has a button allowing holders to resell the bonds, or issuers to repay the amount partially or in full, which yields a discount. This repayment must be in a whole amount divisible by 1000*#bonds since the number of remaining turns is an integer.

discount rate for immediate repayment = the amount of the repayment value, less interest
cash paid (discount rate) = value repaid / (1 + interest rate)
new remaining turns = remaining turns - value repaid/(1000 * #bonds)

If the bond package is repaid fully, it is terminated.

When a holder decides to resell a bond or bond package, they can choose a new interest rate by specifying the amount they want to sell it for, and if they want to sell it publicly or privately. Note that this doesn't affect the amount the issuer pays, it only affects the lump some amount that the holder receives when they resell it.
For example, if a holder thinks the investment has an increased level of risk, they might try and resell the bond at a higher interest rate (lower monetary cost), meaning they receive less cash for the bond, and could end up making a loss if this is lower than what they paid minus repayments.


Insufficient funds for repayment

If a nation who has issued a bond has negative income and runs out of stored money, the holder will stop receiving repayments. This should freeze the bond and prevent the holder from reselling it. If a nation gets money or positive income, repayments will continue to be deducted again.

When a bond is frozen and the debtor can't pay, there will only be an option for the bond holder to forgive debt and forfeit the remainder of the bond value.
The bond holder can also forgive debt while the bond is active by selling the bond back to the bond issuer at a reduced rate, terminating it.


Bond repayment deduction before or after alliance taxes
There are reasons both for before and after:

Before alliance taxes:
1. Alliances generally provide loans that are below the market interest rate, which means that it makes sense to pay off the bond which has a higher interest rate first.
2. Alliances won't be able to freeze bond repayments by setting the tax rate very high like 100%
    - This isn't an issue however if the nation keeps cash reserves which it can use to pay the bond repayments, for example from selling resources, and if it has no reserves, it will lose power in all cities anyway. This should limit potential abuse.

After alliance taxes:
1. Prevents nations evading alliance taxes by issuing bonds to make use of taxed income they otherwise wouldn't have access to.
2. The total amount a nation can borrow would be dependent on their net income after taxes, so it makes sense that bond repayments are deducted from this after tax income.
3. Bond holders shouldn't have to pay taxes on bond payments received since it's essentially money they have already paid tax on which they are investing. They should only be liable for taxes on the interest portion of each repayment, not the principle.

Considering these points I think bond repayments should be deducted after alliance taxes.

 

Wars and Blockades

There's also the question of whether a nation should continue to receive and pay bond repayments through a blockade. Of course, nations under blockade would not be able to sell or buy bonds, or contribute/receive additional amounts to pay off bonds.

If nations don't receive bond payments while under blockade, then a nation holding bonds has their investment completely secure and it can't be raided, however they also can't use the money to help them in the war effort.
On the other hand, nations who have issued bonds won't have to pay bond repayments and can therefore they get an income boost to help them in the war. If nations can receive/send bond payments during a blockade, the reverse is true.
I'm leaning towards they do receive/pay installments since nations that have to pay repayments shouldn't gain the benefit of extra income from a blockade, similarly to why alliance taxes are still taken even through a blockade.

It might also be useful to have a way to voluntarily freeze bond payments during wars: the bond issuer can request a freeze (debt relief) and the bond holder can either accept or reject it. Either party can unfreeze the bond again. This way, bond holders can give their debtor a fighting chance in the war so they can hopefully continue to make repayments in the future.

Edited by Erland
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This is actually an interesting game suggestion - kudos to you! 

I'd like to see some more people comment, but I actually like what I see. Depth is great when suggesting things, Epi is right, this has depth. Unfortunately, I don't think Alex believes in depth. 

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