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Term: Tranches

Description:

Tranches refer to a financial concept where a pool of assets or securities is divided into different parts or classes, each with its own characteristics, risks, and rewards. Each tranche is known for its specific position and priority in receiving payments or distributions. It is commonly used in structured finance transactions, such as mortgage-backed securities (MBS) or collateralized debt obligations (CDOs), to manage the cash flow and risk of the underlying assets.

Sample Sentences:

1. The mortgage-backed security was divided into several tranches, allowing investors to choose a level of risk and return that suits their investment strategy.
2. In a collateralized debt obligation, the senior tranche has the first claim on cash flows, while the junior tranches bear higher risks but potentially higher returns.
3. Investors should carefully evaluate the quality and creditworthiness of each tranche before making any investment decisions.
4. The tranche structure of the bond offering provided diversification and flexibility to investors with varying risk appetites.

Related Products on Amazon:

• Mortgage-Backed Securities
• Collateralized Debt Obligations
• Structured Finance