Obligation

An obligation is a duty or responsibility to do something. In finance, an obligation is a financial instrument that represents a debt owed by one party (the issuer) to another party (the holder). Obligations can be issued by governments, corporations, or other entities.

There are two main types of obligations: debt obligations and equity obligations. Debt obligations are promises to pay a certain amount of money at a specified time in the future. Equity obligations give the holder a share of ownership in the issuer.

Debt obligations are typically issued by governments or corporations to raise money. The interest rate on a debt obligation is the cost of borrowing money. The higher the interest rate, the more expensive it is for the issuer to borrow money.

Equity obligations are typically issued by corporations to raise money. The value of an equity obligation is based on the performance of the issuer. If the issuer does well, the value of the equity obligation will increase. If the issuer does poorly, the value of the equity obligation will decrease.

Obligations can be traded on the secondary market. This means that they can be bought and sold by investors after they have been issued. The price of an obligation on the secondary market is determined by supply and demand.

Obligations are an important part of the financial system. They allow governments and corporations to raise money, and they provide investors with an opportunity to earn a return on their investment.