What is Structured Finance?

Structured finance is a complex financial instrument offered to borrowers with unique and sophisticated needs. Generally, a simple loan will not suffice for the borrower so these more complex and risky finance instruments are implemented.

How Does Structured Finance Work?

In many cases, the needs of a large borrower involve the execution of a series of discrete transactions as dictated by operational needs. This cannot be accomplished with a mere loan.

Structured finance products are usually include derivatives and securitized and collateralized debt instruments like syndicated loans, collateralized mortgage obligation mortgage obligations, collaterized bond obligations (CBOs), collaterized debt obligations (CDOs), credit default swaps (CDSs) and hybrid securities.

Why Does Structured Finance Matter?

Structured financial products are not offered by all lenders and, in almost all cases, are not transferable between other types of debt in the same way as a straightforward loan. They are usually only offered to large borrowers needing a vast injection of capital or another source of income.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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