What is a debt instrument?

A debt instrument is a paper or electronic obligation that allows the issuing party to raise funds (that is, to obtain financing) with the promise to repay the amount loaned in a time established in a prior agreement.

Among the most popular debt instruments are notes, bonds, obligations or even, a mortgage is at heart, a debt instrument. This type of instrument allows the different market agents to transfer the ownership of these debt obligations from one party to the other.

One can speak of two types of debt instruments depending on their duration.

Short-term debt instruments

From a personal financial perspective, short-term debt instruments include, for example, credit cards, personal loans or financing to acquire a good or a service that must be repaid in less than 12 months.

If we talk about the perspective of corporate financeThese types of short-term debt instruments come in the form of revolving lines of credit or government bonds.

Long-term debt instruments

Like the previous ones, these can be analyzed from two perspectives.

In personal finance the most common are mortgages or a loan to pay for a car. For companies, this type of debt instrument comes in the form of corporate debt, used to finance, for example, the growth and expansion of a company and which is reflected in the company's balance sheet.



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