Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Obligation

What it is:

An obligation is a legal requirement to fulfill a responsibility. In the finance world, this often involves making specific payments by specific dates and/or ensuring that a company meets certain performance requirements.

How it works (Example):

A borrower, for example, has an obligation to make payments of an agreed-upon size on an agreed-upon date. A company may have an obligation to provide certain disclosure to the Securities and Exchange Commission (SEC). A board may have an obligation to pay an executive a certain amount of money if certain events occur, and a lender may have an obligation to charge a certain amount of loan interest for a fixed period of time, even if it can get a higher interest rate later on other loans.

Why it Matters:

In the finance world, obligations are everywhere, and the fulfillment or lack of fulfillment (or even speculation about the lack of fulfillment) of those obligations has a significant impact on the value of the entities that must meet or depend on the obligations. When a party does not fulfill an obligation, the other party to the contract generally has the right to seek recourse in court.

Related Terms View All
  • Latin Baseball Futures
    Let's say a group of American baseball fans learns of a talented boy in the Dominican...
  • Tax Selling
    Let's assume that John sold two different stocks that he originally bought five years ago...
  • Fair Trade Investing
    For example, if John Doe wanted to adopt a fair trade investing strategy, he would only...
  • Inactivity Fee
    A brokerage house earns revenue from fees and commissions charged on accounts. To hedge...
  • Dun and Bradstreet
    Founded more than 170 years ago, the company (NYSE: DNB) maintains a global database of...