Thursday, May 7, 2009

debt market

the financial market most familiar to students and professors alike is the debt market. In the debt market, lenders provides funds to borrowers for some specified period of time. In return for the funds, the borrower agrees to pay the lender the original amount of the loan (called the principle), plus some specified amount of interest. Individuals use debt markets to borrow funds to finance purchases such as new cars and houses. Corporate borrowers use them to obtain working working capital and new equipment. Federal, state, and local governments use debt markets to acquire funds to finance various public expenditures. New funds (the issue of a new bond or a new-car loan, for instance)occur in the primary debt market. When an individual or a financial institution buys or sells an existing loan-such as when Sallie Mae buys your student loan-the transaction takes place in the secondary debt market. Assets in the debt market are further classified as short-term if the underlying obligation when issued is one year or less, intermediate-term if the obligation when issued is between one and ten years, and long-term if the obligation is more than ten years in length.

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