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Another Helping of Alphabet Soup

If you know that a CLO is a type of CDO, which is a type of ABS, then you may be ready for the future of finance. Financial innovations are on the horizon, says Associate Professor of Finance Rui Albuquerque, and such new instruments will certainly come with new acronyms.

Where these innovations will occur is still TBD, but Albuquerque has some guesses: “We need financial innovation to help us deal with the large amounts of liquidity spread worldwide and to secure the survival of the Euro Zone,” he says. “In addition, we could use more financial innovation to promote large-scale investments in social causes.”

When these financial innovations arrive, Albuquerque warns, we shouldn’t let the simplicity of their names fool us into underestimating their complexity. Last time that happened, many investors were left out of luck.