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Debt

Debt refers to money borrowed by one party from another, typically involving a contractual agreement where the borrower must repay the amount with interest over time. Debt can be in the form of loans, bonds, mortgages, or other financial instruments. Businesses, governments, and individuals use debt to finance operations, investments, or purchases. Managing debt responsibly is crucial for maintaining financial stability and avoiding default.

Example

A company takes on debt by issuing bonds to raise capital, promising to repay the bondholders with interest over a fixed period.

Key points

• Debt is money borrowed under a contract to be repaid with interest.

• It can be in the form of loans, bonds, or mortgages, used by individuals, businesses, and governments.

• Responsible debt management is essential for financial stability.

Quick Answers to Curious Questions

Common forms include loans, bonds, mortgages, and credit lines, all of which require repayment with interest over time.

Companies use debt to finance growth, investments, and operations, often preferring it over equity to avoid diluting ownership.

Excessive debt can lead to financial instability, making it difficult to meet repayment obligations and increasing the risk of default.

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