Wednesday, October 23, 2019
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Debts

 

 

 

 

The debt is an obligation that a natural or legal person has to fulfill its payment commitments, fruit of the exercise of its economic activity.

 

The main purpose of debt issuance is to search for financing , the problem is when the cost of financing becomes more expensive because investors consider that the purchase of the same has more risk, due to the future probability of its return (solvency ), demanding more profitability for the possession of the same through a  risk premium . At this point, it will not be the same in terms of security refers a bond of the German state that the issuance of a  bond  of a small company and that is not listed on the market, which is what is called  private equity .

 

Types of debt

Types of debt

Debts can take different forms, maturities and uses:

 

A discount.

With periodic payment of coupons.

With different issue prices and quotes.

Debt convertible  into products with more risk and subject to market fluctuations.

Debt that is used as  an underlying asset  in  derivative products , such as Futures .

Senior with a real guarantee or guarantee, also called collateral .

Debt is very important in financial markets, since it allows the economy to continue working, without forgetting that whenever we think about the word in question, it can be scary, since it is an obligation to pay to third parties and when not can be paid becomes a serious problem. In recent times, techniques have been developed such as  raising assets  to prevent the creditor from tracking the outstanding debt owed to the debtor.

 

Finally, indicate that there are different credit ratings by rating  agencies , which qualify the debt according to a series of criteria, which in many cases are questioned due to their lack of independence and the unorthodox methods they use to value it, with the objective of assessing the security of an issue.

 

There are two clearly differentiated groups in the financial markets from which other types of debt hang. Attentive to the emitter we find:

 

Public debt : it belongs to the State.

Private debt : corresponds to the debt issued by private bodies.

Other meanings that we can find in real life, such as l a legal debt, active, moral, external and internal to a country or households.

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