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A debt instrument is a documented financial obligation that enables the issuer to raise funds by borrowing money and repaying it in the future. Debt instruments include notes, bonds, certificates, mortgages, leases or other agreements. Repayment terms are spelled out in the contract, and agreed to by both the issuer and the investor.

An investor who purchases a debt instrument is essentially loaning her money to the issuer, which could be a government, bank, corporation, business or some other entity. In return, she usually receives compensation in the form of interest payments and the return of her principal.

Debt instruments facilitate the transfer of debt ownership. Many creditors will trade debt obligations, which can be moved quickly and efficiently, to create revenue and increase liquidity.

Borrowers enjoy the freedom to spend their loans as they need to. They can also shop around for debt instruments that offer the lowest interest rates.

Many loans require borrowers to put up some sort of collateral, which the lender can seize if the borrower defaults.

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