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Underwriting Meaning

Underwriting is the process by which an individual or institution, typically an insurance company, bank, or investment bank, evaluates the risk of insuring or financing an entity, asset, or transaction and determines appropriate terms and pricing. In insurance, underwriters assess the likelihood of claims and set premiums based on factors like age, health, or property condition.

In capital markets, underwriters help companies issue securities by purchasing shares or bonds and then reselling them to investors, assuming the risk of distribution. In decentralized finance, underwriting may involve smart contracts that analyse collateral and borrower data to determine interest rates and loan-to-value ratios.

Effective underwriting ensures that financial institutions manage risk appropriately while offering competitive products to clients.

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