• Is the term which indicates a credit relationship. Insecurities it can refer to borrowing funds or borrowing securities. When borrowing funds it is for margin for financing purposes. When borrowing securities, it is for short selling or hedging purposes.
• To obtain or receive money on loan with the promise or understanding that it will be repaid.
| ||Embedded terms in definition|
| ||Referenced Terms|
| ||Advanced refunding: Is the technique of replacing one bond issue by another. This typically occurs when a municipality can Borrow at more favorable terms than the outstanding issue. The new issue's proceeds are used to purchase government obligations which are held in escrow. The income and/or appreciation of these government securities is then used to service the outstanding debt. The escrow may be held until the first call date or maturity of the initial bond issue. If the escrowed funds retire the original issue at the first call date then the issue is pre-refunded. This retirement and replacement process of debt is also known as defeasance.|
| ||Back to back loan: An example of a back-to-back loan would be IBM agreeing to lend dollars to British Petroleum in exchange for the latter lending pounds to IBM. Such agreements are struck only when exchange controls in one or more countries prevent normal capital flows.A loan in which two companies in separate countries Borrow each other's currency for a specific time period and repay the other's currency at an agreed upon maturity.|
| ||Corporate bond: A certificate indicating that a corporation has Borrowed a certain amount of money from an institution or an individual and promises to repay it in the future under clearly defined terms.This is the public debt (IOU) of corporations. Instead of taking a bank loan, corporations can directly Borrow from institutions or individuals by selling them bonds. They pay interest with coupons attached to the bonds. They usually have long lives such as 20 or 30 years. They come in denominations of $l,000 and pay interest every 6 months.A Debt Security issued by a corporation. A corporate bond typically has a par value of $1,000, is taxable, has a term maturity, and is traded on a major exchange.|
| ||Cost of capital: The required return for a capital budgeting project.The minimum rate of return that a firm must earn on its project investments to maintain its market value and attract needed funds. This rate of return is based on the mix of debt and common equity financing.This is the price of capital. When corporations Borrow, they pay interest, which is called the cost of debt capital. In the context of valuing firms, the discount rate is called the cost of capital.|
| ||Debt capacity: Ability to Borrow. The amount a firm can borrow up to the point where the firm value no longer increases.|