What is Collateralized Debt Obligation?
A definition of Collateralized Debt Obligation
“A collateralized debt obligation (CDO) is a complex financial instrument that repackages loans, like mortgages, into tranches that are then sold to investors.”
Business Glossary > What is Collateralized Debt Obligation?
Examples of Collateralized Debt Obligation in a Sentence:
A collateralized debt obligation is often used by banks to transfer risk.
Investors are attracted to collateralized debt obligations for their potential high returns.
Understanding collateralized debt obligations is crucial for financial analysts.
Why is Collateralized Debt Obligation Important in Business?
Understanding collateralized debt obligations is important as they are significant in the financial market, especially during financial crises. They allow institutions to manage risk and liquidity more effectively, despite their complexity and associated risks.
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Associated Terms
Here are some associated business terms and synonyms for “Collateralized Debt Obligation”:
- CDO
- Structured Finance Product
- Asset-Backed Security
Goldman Sachs and Collateralized Debt Obligations
Goldman Sachs was heavily involved in the collateralized debt obligation market prior to the 2008 financial crisis, creating and selling CDOs that were backed by mortgage-backed securities. This activity was a major factor in their financial strategies during that period.
Final Notes on Collateralized Debt Obligation
When dealing with collateralized debt obligations, financial analysts should consider the underlying assets, the structure of the tranches, and the overall market conditions.
This understanding will aid in making informed investment decisions and managing potential risks.
This has been a definition of Collateralized Debt Obligation meaning.
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