collateral

(noun)

A security or guarantee (usually an asset) pledged for the repayment of a loan if one cannot procure enough funds to repay. (Originally supplied as "accompanying" security. )

Related Terms

Examples of collateral in the following topics:

  • Setting a Credit Policy

    • To reduce its risk, the seller may perform a credit check on the buyer or require the buyer to put up collateral against credit extended.
    • Collateral: Does the borrower have any assets that can secure the loan?

  • Securitization and the 2008 Financial Crisis

    • Investment banks packaged the bonds from mortgage asset-backed securitized into Collateralized Debt Obligations (CDOs).
    • A company can use a collateralized debt obligation to enhance their financial statements artificially.
    • Mortgage asset-backed securities and collateralized debt obligations attracted large sums of money to U.S. housing market, causing the rapid appreciation of housing prices.

  • Answers to Chapter 10 Questions

    • Banks use credit risk analysis, collateral, credit rationing, and restrictive covenants to reduce adverse selection.

  • What Happens in Bankruptcy

    • A secured creditor may be allowed to take the applicable collateral if the creditor first obtains permission from the court.
    • The court must either grant permission or provide adequate protection to the secured creditor that the value of their collateral will not decrease during the stay.

  • Long-Term vs. Short-Term Financing

    • Since it is not backed by collateral, only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price.
    • Asset-backed commercial paper (ABCP) is a form of commercial paper that is collateralized by other financial assets.

  • Other Types of Bonds

    • Examples of asset-backed securities are mortgage-backed securities (MBS's), collateralized mortgage obligations (CMOs), and collateralized debt obligations (CDOs).

  • Inflation Premium

    • The first includes the possibility that the borrower will default or be unable to pay on the originally agreed upon terms, or that collateral backing the loan will prove to be less valuable than estimated.

  • Implications for Variance

    • derivatives , such as long-short or market neutral strategies, options , collateralized debt, and futures

  • A Bank Failure

    • Bank prevents adverse selection by requiring collateral.
    • For example, the house becomes the collateral for a mortgage.

  • Discount Policy

    • The discount is the difference while the T-bill becomes the collateral of the loan.
    • Currently, any bank in the U.S. can borrow from the Fed, and the Fed may not require collateral for the loan.