The main focus of our discussion, credit and debt, is seen through the activity of a treasury, its role, and the way certain risks are managed. We have seen how a financial institution and in particular a development institution work; we have seen how discounting plays a crucial role in assessing the value of any financial instruments; more importantly we have seen how the concept of credit and in turn the concept of funding cost is closely linked to it. On the issue of credit we have seen how this is treated under a modeling point of view and what it entails when applied to the lending side of a financial institution (with a focus on development). We have seen how financial instruments behave differently in less developed markets and what this entails in terms of borrowing and lending. We have seen how bonds are priced and, crucially, the role played in this by credit.
The above are some of the most important tools needed to understand the role and activities carried out by a treasury desk and in particular to understand the role played by funding when it comes to treating financial instruments. In this chapter we shall try to show how the goal of a treasury desk is to raise funds by issuing debt in the most attractive way to investors. How to get to this price, where and how to issue it, and the impact of the price on the credit standing (or vice versa) of the issuers are all points that will leverage the knowledge we have acquired in the previous ...