Definition for : Collateral

"Collateral" (also called "Security") describes the characteristic of Assets assigned/pledged by a borrower to a lender as a form of Credit enhancement designed to reduce the Risk attached to lending it some money. All securitization use some form of collateral (or Security) to achieve a higher Rating than normally achievable on an Unsecured basis. Likewise, commodity trade financing makes an extensive use of collateralized facilities (E.g. commodity inventory financing, or reserve-based lending).
(See Chapter 22 Shares of the Vernimmen)
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