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What is Agio?
Agio refers to a premium or percentage paid on a bond. This term is also used in the context of currency exchange, it refers to the percentage charged when one currency is exchanged for another one with a higher value. Agio also describes the difference between the nominal value and actual value of a currency or the difference between the market value and face (par) value of a bond. Agio is often used in the international markets where bonds are traded and currencies are exchanged. Traders in the international markets also describe agio as the fee paid for a transaction.
Back to: INVESTMENTS TRADING & FINANCIAL MARKETS
How Does Agio Work?
When the market value of a bond is greater than its face value, agio can be realized. It is the premium paid for trading bonds or the percentage paid for exchanging on currency for another in the international market. In certain cases, agio can mean the spread of a bond, although it is not frequently used. In the international market, different currencies have different values, when a currency with a smaller value is exchanged for a currency with a higher value, a percentage is paid for this transaction which is called agio.
Agio and Bond Values
The value of bonds is crucial to the understanding of how agio works. A bond value refers to the worth of bond given certain factors such as the intrinsic value of the bond, and market valuation. Bond valuation is a complex phenomenon given that different bonds exist and have different values. Examples of bonds include corporate bonds, municipal bonds, and others. When a bond is traded in the market, a premium is paid called agio. This is also the difference between the market value or market price and the face value of the bond.
Academic Research on Agio
- Charge density waves, spin density waves, and Peierls distortions in one-dimensional metals. 2. Generalized valence bond studies of copper, silver, gold, lithium and , McAdon, M. H., & Goddard III, W. A. (1988). Charge density waves, spin density waves, and Peierls distortions in one-dimensional metals. 2. Generalized valence bond studies of copper, silver, gold, lithium and sodium. The Journal of Physical Chemistry, 92(5), 1352-1365.
- Bond ionicity of the halogensilver interaction, Bagus, P. S., Pacchioni, G., & Philpott, M. R. (1989). Bond ionicity of the halogensilver interaction. The Journal of Chemical Physics, 90(8), 4287-4295. The nature of the bonding between halogen atoms (F, Cl, and Br) and the Ag (111) surface has been investigated by analyzing abinitio HartreeFock wave functions for cluster models of the Ag surface and a halogen atom. Using a variety of criteria, we conclude that the bonding is ionic and that the halogen ionicity is essentially 1. The measures of ionicity reported are (a) the expectation value of a projection operator which provides an indication of the total charge associated with the halogen atom, (b) the analysis of the dipole moment curve as function of distance, (c) the effect on the equilibrium bond distances of a uniform external electric field, and (d) the decomposition of the interaction energy into the sum of different contributions. This latter analysis shows that the bonding arises, almost entirely, from two effects: (1) the Coulomb attraction between the charged halogen and the metal and (2) the intraunit polarization of the metal and halogen subunits.
- Bond energies in solution from electrode potentials and thermochemical cycles. A simplified and general approach, Wayner, D. D., & Parker, V. D. (1993). Bond energies in solution from electrode potentials and thermochemical cycles. A simplified and general approach. Accounts of chemical research, 26(5), 287-294.
- Financial Markets and Corporate Strategy, Opler, T. (1998). Financial Markets and Corporate Strategy.