Final answer:
A debenture is an unsecured financial instrument that carries higher interest due to the increased risk for investors, as it relies solely on the issuer's creditworthiness and reputation, without any collateral.
Step-by-step explanation:
The financial instrument that is unsecured, supported only by the reputation of the issuer, and therefore carries higher interest due to being riskier is known as a debenture. Unlike secured bonds which are backed by specific assets, debentures rely on the creditworthiness and reputation of the issuer. Consequently, because there is no collateral to recover in case of default, investors demand a higher interest rate as compensation for the increased risk.
When companies or governments need to raise funds, they can do so through various means, including the issuance of bonds. Bonds are essentially loans from the bondholders to the issuer, which come with the promise of repayment with interest over time. In this context, a debenture is a type of bond that does not require collateral and thus presents a higher risk for the investor.