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Bonds

In financial parlance bonds refer to a debt security where the issuer owes the holder a debt and has the onus to reimburse the interest and principal at a stipulated date. Sometimes, several other stipulations are also attached to the bond issue like the obligation for the issuer to furnish several details to the bond holder or restrictions on the behavior of the issuer.

Bonds are issued for a fixed period which is longer than one year. Usually bonds are just loans. But in actuality, they are a form of security but for the difference in the terminology. The issuer refers to the borrower and bond holder refers to the lender and coupon refers to the interest.

Bonds allow the issuer to finance long-term investments with external funds. But if the maturity for debt securities is lesser than one year, they are called as bills. Certificates of deposit are considered as money market instruments.

More Glossary Terms Explained here


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