A surety is a type of financial arrangement where one party guarantees another party that their obligations will be fulfilled. It serves as an important risk-mitigation tool, where one party guarantees the financial dealings of a second party, either to a government entity or to a private person or organization.

A surety bond is the most common type of surety arrangement. Here, the principal, who is responsible for fulfilling the contract, obtains a bond from a surety, or guarantor. This bond serves to guarantee that the principal's obligations will be met should they default on them. In this arrangement, the principal makes regular payments to the surety, usually in the form of premiums, and the surety, in turn, guarantees the principal's obligations. The surety is expected to step in and cover any costs, liabilities or other damages incurred if the principal does not fulfill their obligations.

In some cases, the surety may even require additional collateral from the principal to further securitize their commitment to fulfilling the contractual obligations. This helps to ensure that, regardless of any financial difficulties, the principle will make good on their agreement.

Because most surety contracts are risky, both parties involved must do their due diligence to ensure that all parties understand the terms and conditions of the agreement. The surety must fully understand the risks associated with the agreement, as well as the financial stability of the principal. The principal must also understand their obligations under the contract, and be aware of any unforeseen circumstances that could impact their ability to meet the terms of the agreement.

All in all, surety agreements are advantageous to all parties involved. They create financial stability and assurance that the principal's obligations will be met. They offer a degree of protection for the surety, such as by protecting against losses resulting from the principal's default. Finally, surety agreements create a safe legal environment for the obligee, giving them peace of mind that their contractual obligations will be met.