Also debt is used for many things for businesses, like to stabilize cash flows, or to reduce risk.
Let’s say Carmen owns an ice cream truck, so she knows that when summer ends she might earn less money. She buys the debt from Bob (who needs money now), so she can collect from Alice come winter, when she needs the money.
It’s also used to inflate asset numbers. Carmen is applying for a loan to improve her ice cream truck, but she needs to put some of her assets as collateral. In theory she could count Alice’s debt as money she has the right to, but doesn’t have right now, so she can say to the bank “hey here’s 1000 I expect to have this winter as colateral for the loan”
Just to answer your basic question a bond has an interest rate which is called the “yield” and it means if you purchase and hold the bond to “maturity” you will get back in total more money than you originally paid for the bond.
Bonds are the primary way large institutions (including governments) borrow money and also create the foundation for all other loans (because of how banking works)
Who wants to buy debt? What value does owing someone money have😭😭
“buying debt” means buying the part where someone owes you, not buying the part where you owe someone.
Ie, Alice owes Bob $1000 and Carmen buys the debt from Bob, so now Alice owes Carmen $1000
Also debt is used for many things for businesses, like to stabilize cash flows, or to reduce risk.
Let’s say Carmen owns an ice cream truck, so she knows that when summer ends she might earn less money. She buys the debt from Bob (who needs money now), so she can collect from Alice come winter, when she needs the money.
It’s also used to inflate asset numbers. Carmen is applying for a loan to improve her ice cream truck, but she needs to put some of her assets as collateral. In theory she could count Alice’s debt as money she has the right to, but doesn’t have right now, so she can say to the bank “hey here’s 1000 I expect to have this winter as colateral for the loan”
Okay nice. This part makes more sense now. Thank you!
Ohhhhh. Thank you!
Just to answer your basic question a bond has an interest rate which is called the “yield” and it means if you purchase and hold the bond to “maturity” you will get back in total more money than you originally paid for the bond.
Bonds are the primary way large institutions (including governments) borrow money and also create the foundation for all other loans (because of how banking works)
I appreciate you trying, but it seems like in order to explain some words you need to use 3 other words that need explanations haha
I have ecactly zero knowledge on banking or whatever
It can definitely be that way unfortunately…
There’s a lot of counterintuitive concepts in international finance and they kind of build on each other