Financial Engineering is a process that uses existing financial instruments to create a new and enhanced product of some type. Just about any combination of financial instruments such as Bank Guarantee, Standby Letter of Credit, Documentary letter of Credit, Promissory Note, Sovereign Guarantee…) and products (mines, land, productions…) can be used. The process may involve a simple union between two products, or make use of several different products to create a new product that provides benefits that none of the other instruments could manage on their own.
One excellent example of financial engineering is to raise the funds, this is one major activity, based on a credit facility, and the guarantee from the bank to get the cash to create a financial reinsurance. Companies that offer reinsurance options essentially provide a way for the ceding insurer to minimize a drain on available resources when a major shift in premium growth or reduction is taking place. In this scenario, the process helps to create a stable environment that will allow the insurer to remain solvent and stable even when extreme conditions exist. This is our JOB, and we do it for State Owned companies or for large corporations.
For the consumer, the work of a financial engineer to create new product offerings can be a great advantage. In some instances, the new and improved product is simply a repackage of several independent but complimentary products made available at a lower price. For example, the consumer may find that purchasing insurance coverage that provides dental, hospital, and prescription coverage may be significantly less expensive than purchasing individual plans.