Identification
Debt instruments are loans that must be repaid with interest and principal. Car loans, mortgages and corporate bonds are some examples. Marketable debt can be readily turned into cash by the debt holder at a reasonable cost.
Examples
The most common marketable debt instruments are the bonds of governments and corporations. These debt instruments trade on established markets, where a bond seller can find a ready buyer and a competitive price.
Comparison
Corporate loans from banks, credit card debt and car loans are examples of non-marketable debt. These loans are held by the issuing financial institution until they are paid off and cannot be easily sold to another party.
Securitization
Non-marketable debt is often turned into marketable debt by a securitization process. The most common example is when individual mortgages are combined into a pool of mortgages in which investors can buy and sell pieces of the pool.
Effects
The market value of marketable debt will fluctuate with changes in interest rates and the perceived credit-worthiness of the borrower. Marketable debt is often traded by investors for capital gains as well as the interest paid on the debt.
You Might Also Like :: How to Develop a Prospectus for Bonds
Save for later
Found this helpful?
Pin this article to your Pinterest board and come back to it whenever you need a reminder.
Save to Pinterest
