ASSET BACKED SECURITY is a debt instrument collateralized by credit card receivables, auto loans or other assets and securitized by a bank or financial institution. To reduce the possibility of a disruption in principal and interest payments, the cash flow from these assets is enhanced by a variety of methods including letter of credit support, insurance, overcollateralization and excess interest.
HAIRCUT is the amount of reduction in market value given to securities pledged as collateral, typically in a repurchase agreement or a reverse repurchase agreement. This reduction assures the lender of funds in this type of transaction that, even if the collateral's market value declines, there is time to call for additional collateral to bring the collateral value back up to an acceptable level.
CURRENT COUPON is the the coupon for a recently issued bond that reflects the prevailing level of interest rates, with the result that the bond is priced at or close to par value.
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