How the Trading Floor Really Works

Debt Markets

Almost all companies borrow money, or in other words issue debt. The easiest way to explain this is by using an example of a young couple buying a home. They don’t have the money to buy the entire house, but they have savings which allow them to spend up to 30% of the house price, called “equity,” and they are able to borrow the rest via a mortgage, called “debt.” They also have an income that allows them to pay off the mortgage debt (plus the interest) over the years. In theory, over time, as the couple pay down the mortgage, their equity in the house increases until they eventually have 100% equity in their house and no debt. Most companies on the other hand almost never pay down their debt entirely. Instead, they continue to borrow ...