Answer: Overcollateralization

## Explanation **Overcollateralization** is an internal enhancement because it involves the issuer providing more collateral than needed to support the securities, which is an enhancement that comes from within the structure itself. Let's analyze why the other options are not internal enhancements: - **B. CDS (Credit Default Swap)**: This is an external credit enhancement provided by third parties (typically banks or insurance companies) to protect against credit risk. - **C. Put options on assets**: These are external enhancements that give the holder the right to sell assets back to the issuer at a predetermined price, typically provided by third parties. - **D. Letters of credit**: These are external credit enhancements provided by banks or financial institutions that guarantee payment if the issuer defaults. **Internal enhancements** are those that are built into the structure of the security itself, such as: - Overcollateralization - Cash reserve accounts - Subordination (senior/subordinated structures) - Excess spread **External enhancements** come from third parties outside the structure, such as: - Credit default swaps - Letters of credit - Surety bonds - Financial guarantees - Put options Therefore, overcollateralization is the correct answer as it represents an internal credit enhancement mechanism.

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