A working knowledge of borrowing is important to the economic well-being of these units of government because the cost of borrowing is a significant expenditure. We hope to demystify the most important issues relating to the cost of borrowing. The borrower is usually referred to as the issuer of the debt. On the other side of the transaction is the lender, frequently known as the purchaser of the debt. This can be an underwriter, a bank, a state agency or a lending authority.
Underwriters invariably resell the debt to their own customers.
For example, when bonds are issued underwriters will buy the issuer's bonds and at the same time, resell them to their own customers who may be individuals or institutions. Most of this discussion will assume bonds are being issued. Many bond issues are backed by bond insurance. This is purchased from a specialized insurance company. This is a form of credit enhancement.