Financial Markets and Instruments Essay Example | Topics and Well Written Essays - 250 words

Financial Markets and Instruments - Essay Example ovides a liquid secondary market for illiquid assets like home mortgages and financial debt instruments, increases credit availability and offers low credit costs through low financing costs. Regulation has also played a role in the resurgence of securitization. With regulations that require stronger capital and liquidity positions for financial companies in the US, the consumer has been protected from the malpractices of investment bankers (Gaschler, 668). These regulations have led to consumer confidence and in turn led to the resurgence of securitization. Credit enhancement is a strategy used by companies to either improve the terms of their outstanding debt or credit worthiness, or both. Through credit enhancement, the credit worthiness of a borrower is increased while the lender is given reassurance that there will be no default. Investment banks have made use of both internal and external credit enhancement strategies to boost securitization (Powell and Rogers, 77). External credit enhancement can be done through letter of credit, wrapped securities, cash collateral account and surety bonds while internal credit rating can be done through excess spread, over collateralization, reserve account and credit