What is Bond Financing?

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Bond financing refers to a method in which a company or institution raises funds by issuing bonds. Bonds are a type of debt instrument, and the issuer promises to pay interest and repay the principal to the bondholders within a certain period of time. Bond financing can help companies or institutions raise the necessary funds, while bondholders can earn fixed interest income by holding bonds. Bond financing is commonly used for expanding business operations, investing in projects, and repaying debts.

Definition

Bond financing refers to the method by which companies or institutions raise funds by issuing bonds. A bond is a debt instrument where the issuer promises to pay interest and repay the principal to the bondholder within a specified period. Bond financing helps companies or institutions gather necessary funds, while bondholders earn fixed interest income by holding the bonds.

Origin

The history of bond financing dates back to the medieval period when governments and merchants issued bonds to raise funds. The modern bond market began to develop in the 17th century in Europe, particularly in the Netherlands and the UK. As capital markets expanded, bond financing became a crucial means for companies and governments to raise funds.

Categories and Features

Bond financing can be categorized into government bonds, corporate bonds, and municipal bonds. Government bonds are typically issued by national governments and are considered low-risk; corporate bonds are issued by companies and carry higher risk and return; municipal bonds are issued by local governments, often for public projects. Features of bonds include fixed interest, principal repayment at maturity, and relatively high security.

Case Studies

A typical case is Apple Inc.'s issuance of $17 billion in bonds in 2013, which was the largest corporate bond issuance at the time. Apple used these funds for stock buybacks and dividend payments. Another example is Tesla's issuance of $5 billion in convertible bonds in 2020 to support its business expansion and new project investments.

Common Issues

Investors in bond financing may encounter issues such as interest rate risk, credit risk, and liquidity risk. Rising interest rates can lead to a drop in bond prices, credit risk involves the possibility of issuer default, and liquidity risk refers to the difficulty of quickly selling bonds when needed.

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Zero-Rated Goods

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Zero-Floor Limit

The term "zero-floor limit" refers to a policy whereby merchants are required to obtain authorization for every transaction processed at their store, regardless of its size. By contrast, some stores only require authorization for transactions that are above a certain size, with that size threshold being known as the store's floor limit.

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The term "zero-floor limit" refers to a policy whereby merchants are required to obtain authorization for every transaction processed at their store, regardless of its size. By contrast, some stores only require authorization for transactions that are above a certain size, with that size threshold being known as the store's floor limit.

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Lisbon Treaty

The Lisbon Treaty, also known as the Treaty of Lisbon, updated regulations for the European Union, establishing a more centralized leadership and foreign policy, a proper process for countries that wish to leave the Union, and a streamlined process for enacting new policies.The treaty was signed on December 13, 2007, in Lisbon, Portugal, and amended the two previous treaties that established the foundation for the European Union.

Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

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Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.

Negotiable Instruments

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Negotiable Instruments

A negotiable instrument is a signed document that promises a payment to a specified person or assignee. In other words, it is a formalized type of IOU: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand.Common examples of negotiable instruments include personal checks, cashier's checks, money orders, certificates of deposit (CDs), promissory notes, and traveler's checks. The person receiving the payment, known as the payee, must be named or otherwise indicated on the instrument. Because they are transferable and assignable, some negotiable instruments may trade on a secondary market.