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Collateral (1) Generally, in banking and finance, refers to security to back up a debt or obligation.
(2) In the context of derivatives, refers to an asset (usually cash or near-cash securities) pledged as a security with the counterparty that is entitled to seek payment, for example, in case of a credit derivative, by the protection seller with the protection buyer. See also credit support.(3) In the context of CDOs, refers to the assets in which the CDO invests, for example, emerging market debt, investment grade debt, etc.