What is Securitization and Its Examples

Securitization is the process of converting illiquid assets into liquid assets by converting longer duration cash flows into shorter duration cash flows. It is a structured finance which was originated in USA in 1970 out of the necessity faced by the saving and loan associations of the United States to save themselves from the bankruptcy. When inflation began to rise and the market interest rates rose these institutions found that they had to pay high market rates for attracting short term deposits which were higher than the rates they were earning on the long term mortgage loans. For resolving these problem these institutions turned towards securitization of debt by selling long term debt in the form of securities of different maturities and denominations and sold it to various investors according to their risk- return profiles.

Hence therefore any resource with predictable cash flows can be securitized. For example tickets that is to be sold at a cinema hall, credit card receivables, loans that are to be paid to housing finance company, non performing assets of a financial company, etc…

1 comment… add one

Leave a Comment

Related pages

what is autocratic leaderan example of a vertical mergerideal cibil scoremarket penetration advantages and disadvantageswhat is the meaning of traditional economymerits and demerits of nationalizationdividends defsocialism disadvantagesservice performed but unbilledtraditional economic system advantages and disadvantagesdifference between capital and drawingsbenefits of swot analysisexplain marginal costingdirect quote and indirect quote foreign exchangeunearned revenue accounting entrymarket segmentation advantageshow does it differ from a mixed economyfluctuation in hindiadvantages of privatizationlaw of diminishing utility exampletypes of factoring in financedisadvantages of a monopolyindirect quote currencyadvantages and disadvantages of socialist economic systemmerits and demerits of globalizationdifferentiate between micro and macro economicsdividend wikiwhat is cost pull inflationdemerits of dictatorshipdifference between substitute and complementary goodscheque and draft differencebenefits of command economymeaning of capital formationconsignee meaningindirect quotation examplesunearned revenue on balance sheetdifferent types of factoringdefine conglomerate diversificationfull form of repo ratemeaning of consignor and consigneeplr sbicredit card merits and demeritswhat is a debenture loannasdaq full formcrossing chequescontingent liabilities on balance sheetsubsidiaries of appleforward and spot ratesadvantages of money over barter systemfund flow and cash flowdisadvantages of deficit financingindirect expenses meaningdefine floating exchange ratedefinition of complementary goods in economicsdefine forfeitingnondurable goods definitionexplain fifo methodtypes of dividend policy theoryexamples of skimmingdisadvantages of deficit financingdifference between micro and macro economics pdfsubvention definitiondefine complimentary goodsbenefit of ppffactoring and discountingstable dividend policy definitiondisadvantage of specializationtypes of accounts personal real nominaloverfull demandmeaning of drawer and draweefifo method inventorypricing strategies skimmingbrs rulesimplications of capmdisadvantages of the payback method