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
  • Z
    On the Nasdaq market, for example, the letter Z after the ticker (an XYZ Company security...
  • Minor Downtrend
    The minor trend is the last of the three trend types in Dow Theory -- the other two types...
  • Vagit Y. Alekperov
    Born in 1950 in Baku, Azerbaijan, Alekperov is the youngest of five children. He went...
  • Smartphone Banking
    Smartphone banking typically operates across all major U.S. cellular service providers in...
  • Minimum Margin
    When a trader engages in trading on margin, the margin account must contain at least $2,...