What is a Debt Instrument?
I found the description listed below, but I’m still unclear what a debt instrument is. Could someone please put it in plain English, and give a sound example? According to the description below, a bank could take the debt owed to them (for example if they lend Joe Blow $1000) and sell that debt to some other company in the short term? Not sure if I get it. Thanks. — obligation that describes a debt that is assumed by the issuer of the document. Essentially, the debt instrument commits the issuer to reimburse the debt according to terms agreed upon between the buyer and the seller. Some examples of debt instruments include corporate and municipal bonds, Commercial Papers, Treasury Bills, and Certificates of Deposit. One of the benefits of the debt instrument is that the document makes it possible to effectively transfer the ownership of debt. It is common for creditors to trade debt obligations as a means of generating revenue and keeping liquidity at a higher rate. The end result is
A debt instrument is any type of documented financial obligation that describes a debt that is assumed by the issuer of the document. Essentially, the debt instrument commits the issuer to reimburse the debt according to terms agreed upon between the buyer and the seller. Some examples of debt instruments include corporate and municipal bonds, Commercial Papers, Treasury Bills, and Certificates of Deposit. One of the benefits of the debt instrument is that the document makes it possible to effectively transfer the ownership of debt. It is common for creditors to trade debt obligations as a means of generating revenue and keeping liquidity at a higher rate. The end result is that it is possible for lenders to make use of the funds collected from investors while still protecting those investments and be in a position to make interest payments as well as eventually repay the principle of the debt as well. A Certificate of Deposit is a common debt instrument that is purchased by an investo
A debt instrument is a loan that the debt instrument holder makes to the debt instrument issuer who may be a government, a corporation, or a financial institution. Similar to a loan, a debt instrument makes periodic interest payments and repays the principal at a stated time. The interest is called coupon. A debt instrument is characterised by: • Its face value (also called par value or nominal value): This represents the amount of money the issuer receives for each bond and is used to fix the amount that he will repay upon redemption. This amount is also the basis for calculating interest payments. • Its coupon rate (also called nominal rate): This is the interest on a bond and represents the compensation paid by the issuer for the time value of money. Interest is generally expressed as a percentage that can be a fixed rate, a floating rate or payable at maturity. The dated date is when interest starts accruing on a new issue, which frequently coincides with the issue date. • Its matu
Let’s use a home mortgage as an example. The mortgage contract is a debt instrument. The home buyer is obligated to pay back the lender. Home mortgages can and do get sold all the time. Over the course of buying our home (we’ve paid it off now), we would occasionally get a letter saying “Hi, we’re your new mortgage company”. That meant the mortgage was sold from one company to another. Mortgage companies sell lots of mortgage contracts to “increase liquidity”. In plain English that means that they lent out all their cash so they sold a bunch of the contracts so they could get some cash. I hope this helps. Please return and select a Best Answer from all of those submitted.
