Securitization process motives and risks essay

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Securitization process motives and risks essay

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Securitization process motives and risks essay

It is a corporate function used by various corporations for various reasons. Financial institutions and various corporations have continually used the concept to increase cash inflow and reduce the risks associated with illiquid assets.

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Therefore, a corporation that undertakes a securitization process is simply turning its illiquid assets into securities through pooling the resources assets together and selling them as asset-backed securities Giddy, Ideally, this happens through carefully packaged financial structuring.

In essence, assets that can generate a viable flow of cash for a corporation can go through the securitization process. For instance, financial institutions can turn underlying loans, which are assets in their financial records, into securities and sell them to investors. Basically, this implies that the ownership of the assets goes to the investors.

From a financial perspective, a security is tradable, and it has more valuable than an underlying loan Giddy, In this respect, financial institutions seek to expand the value of their illiquid assets by undertaking the securitization process.

Asset Securitization Securitization is the process of pooling and packaging Financial Assets, usually relatively illiquid, into liquid marketable securities. Securitization is the process of financially structuring a non-liquid asset or group of similar non-liquid assets into a security that can then be sold to . risk across different asset classes, geographies, industries, instruments, and credit risk. By transforming a pool of illiquid assets into tradable securities, securitization also constitutes a.

Having begun in the United States of America in the s, the financial concept has gone through transitions to become a popular business process in the global corporate world Alles, The inception of securitization saw the financing of mortgage-backed securities.

The process has since expanded to include other illiquid assets like car loans, mortgage loans and credit card loans Teasdale, Indeed, securitization is a complex integrated financial process that involves integral parties.

The process involves diverse concepts and elements that define its functionality and the roles played by the fundamental players.

Understanding the integrated functions of the participants and the basic components involved in the process is fundamentally vital in comprehending securitization.

Having an in-depth description of the process will certainly unearth the basic concepts and risks involved in it. Ideally, liquid assets have more value in a company than illiquid assets Fabozzi and Kothari, Hence, it is worth noting that pooling the assets and turning them into securities is not a simple exercise, but a complex interplay of financial fundamentals that define the process.

Of great importance in a securitization process is the key players or parties involved. Depending on the nature of the pooled assets, the parties involved can greatly vary. The players in a securitization process have different roles, and relate differently.

The pertinent participants in a securitization process are analyzed below. Originators refer to the corporation or company whose assets are under securitization. An Aggregator refers to the party that buys similar assets from a number of Originators to come up with the pool of assets for securitization.

It is the Depositor who comes up with the SPV. The Issuer gets hold of the pooled assets from the Originator and provides a platform for the pooled assets to be sold to the investors. The Issuer transmits the certificates to the Depositor in exchange of the pooled assets.

The Issuer gets the pooled assets from the Depositor, who in turn creates the opportunity for the investors to come into play. In a securitization process it is the Issuer a specified company or SPV who holds the pooled assets and acts as the means of cash flow for the pooled assets Dembiermont, The purpose of the Issuer is to ensure that the pooled assets in the securitization process are distinguished from the other assets belonging to the Originator.

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Distinguishing between the pooled assets and other assets is imperative in case the Originator is declared bankrupt. If the Originator is declared bankrupt, the assets transferred to the SPV cannot be affected by the bankruptcy. The amount paid to the Depositor by the Underwriter goes to the Originator.

The amount is basically the purchased price of the assets. It is noteworthy to highlight that the Underwriter is generally an investment bank Teasdale, The Investors are the ones who finally buy the certificates issued to the Issuer Special purpose vehicle.

Based on the terms of the securitization process, the Investors are entitled to receive monthly interests from the SPV.This free Politics essay on Securitization process / framework is perfect for Politics students to use as an example.

Securitization Process Motives and Risks Securitization is a global concept aimed at changing an illiquid asset into a security (Giddy, ).

It is a corporate function used by various corporations for various reasons. Securitization is the process of financially structuring a non-liquid asset or group of similar non-liquid assets into a security that can then be sold to .

Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming it (or them) into a .

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Shariha requires procedural and objective evaluation of securitization process to carry on process and prohibits elements of gharar, interest, haram and encourages real economic participation with mutual risk sharing, profit sharing and benefit of entire society.

Securitization Process Motives and Risks Essay Sample Posted on July 11, by bros2qET1 Securitization is a planetary construct aimed at altering an illiquid plus into a security (Giddy. ).

Securitization process motives and risks essay
Securitization process / framework - Essay UK Free Essay Database