Debt Instrument

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What is a 'Debt Instrument'

A debt instrument is a paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, certificates, mortgages, leases or other agreements between a lender and a borrower.

BREAKING DOWN 'Debt Instrument'

Debt instruments are a way for markets and participants to easily transfer the ownership of debt obligations from one party to another. Debt obligation transferability increases liquidity and gives creditors a means of trading debt obligations on the market. Without debt instruments acting as a means to facilitate trading, debt is an obligation from one party to another. When a debt instrument is used as a medium to facilitate debt trading, debt obligations can be moved from one party to another quickly and efficiently.

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RELATED FAQS
  1. What is the difference between secured and unsecured debt?

    Understand the difference between secured and unsecured debt and how the reliability and trustworthiness of the issuing entity ... Read Answer >>
  2. What are some examples of debt instruments?

    Learn about the common types of debt instruments used by individuals, businesses and governments to raise capital and generate ... Read Answer >>
  3. What are the main categories of debt?

    Learn about the different types of debt available for consumers including secured debt, unsecured debt, revolving debt and ... Read Answer >>
  4. When should a business avoid debt financing?

    Read about the optimal use of debt in a business capital structure and how to know when a business should avoid further debt ... Read Answer >>
  5. What is a good debt ratio, and what is a bad debt ratio?

    Learn about the factors that influence how investors and lenders evaluate the debt ratio for a company and why the answer ... Read Answer >>
  6. Why is debt issued in both temporary and permanent forms?

    Debt is separated into two categories: 1) Temporary or short-term 2) Permanent or long-term. Temporary or short-term debt ... Read Answer >>
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