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They are both holders of someone else's debt.

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16y ago

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What Best explains how bondholders and banks serve a function?

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Best explains why a bondholder is similar to a bank?

Bondholders loan money to bond issuers just as banks loan money to customers.


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In what way are bondholders and banks similar?

In effect, these are both instances of an institution taking a loan from an individual. When you put your money into a bank, you are in essence loaning your money to the bank. They pay you interest on the money, and then they loan it out at a higher interest rate and keep the difference. Likewise, when you take out a bond you are in effect loaning your money to the government, which will pay you back with interest at a later time.