Paper

Credit given, evidenced by a written obligation that is backed by property; slang for debt, often used in contexts such as seller financing.
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Definition

Paper refers to any written evidence of a financial obligation, typically backed by property or other assets. This term is commonly used in the financial industry to denote types of debt instruments, such as promissory notes, bonds, or mortgage agreements, which are secured by collateral. Additionally, “paper” can be slang for debt in scenarios where a seller finances a portion of the sale.

Examples

  1. Promissory Note: A document wherein a borrower promises in writing to pay a specified sum of money to a lender at a future date or on demand.
  2. Mortgage: A written agreement in which property is used as security for the repayment of a loan.
  3. Corporate Bonds: Debt securities issued by corporations and backed by the company’s assets to raise capital.
  4. Seller Financing Agreement: An arrangement where the seller of a property provides a loan to the buyer to enable the purchase, often secured by the property being sold.

Frequently Asked Questions

1. What is typically required for a financial instrument to be considered “paper”?

  • A: It generally must be in writing and represent evidence of debt that is secured by some form of collateral, like property or other assets.

2. How is “paper” different from unsecured credit?

  • A: “Paper” is backed by collateral, whereas unsecured credit does not require security from the borrower.

3. Can “paper” be sold or transferred?

  • A: Yes, many types of paper, like mortgage notes and bonds, can be sold or transferred to other parties.

4. Why is this type of debt called “paper”?

  • A: The term derives from the physical paper documents that serve as proof of the financial obligation.

5. Who typically holds “paper”?

  • A: Financial institutions, investors, and sometimes the sellers themselves hold paper as part of their investment portfolios or as a means to facilitate transactions.
  1. Promissory Note: A written promise to pay a specified amount of money to a specified person either on demand or at a certain future date.
  2. Collateral: Property or other assets that a borrower offers to a lender to secure a loan.
  3. Secured Debt: A type of debt that is backed by a borrower’s assets, acting as collateral.
  4. Bond: A debt security, under which the issuer owes the holders a debt and is obliged to pay interest and/or to repay the principal at a later date.
  5. Mortgage: A loan secured by the collateral of some specified real estate property, with terms outlined in a formal written agreement.

Online Resources

  1. Investopedia - Offers comprehensive information on financial instruments and other related topics.
  2. SEC.gov - Provides detailed regulations and guidelines regarding financial securities and debt instruments.
  3. US Security and Exchange Commission EDGAR Database - For researching company filings, including those related to debt instruments.

Suggested Books for Further Studies

  1. “The Handbook of Fixed Income Securities” by Frank J. Fabozzi
  2. “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen
  3. “Investment Analysis and Portfolio Management” by Frank K. Reilly and Keith C. Brown
  4. “Fixed Income Securities” by Bruce Tuckman and Angel Serrat

Fundamentals of Paper: Finance Basics Quiz

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