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The financial institutions that originate the loans sell a pool of cashflow-producing assets to a specially created third party that is called a Special-Purpose Vehicle (SPV). The SPV is designed to insulate investors from the credit risk of the originating financial institution. The SPV then sells the pooled loans to a trust, which issues interest bearing securities that can achieve a credit rating separate from the financial institution that originates the loan. The typically higher credit rating is given because the securities that are used to fund the securitization rely solely on the cash flow created by the assets and not on the payment promise of the issuer. Monthly payments from the underlying assets - loans or receivables - typically consist of principal and interest, with principal being scheduled or unscheduled. The cash flows produced by the underlying assets can be allocated to investors in different ways. Cash flows can be directly passed through to investors after administrative fees are subtracted, thus creating a "passthrough" security; alternatively, cash flows can be carved up according to specified rules and market demand, thus creating "structured securities."
Accounting Framework - Convention of Disclosure The doctrine of disclosure suggested in which all accounting statements should be honest and to that end, full disclosure of al
We can discount cash flows either by using spot rates or forward rates, because a spot rate is simply a package of short-term forward rates. Assume that the cash
They are issued in the local market by a domestic borrower and are usually denominated in the local currency. For example, US companies issuing bonds to US reside
Lease A lease is a contractual arrangement allowing one party the use of some exact assets for a specific times period in exchange for a payment it is same as a rental arrangem
Post-acquisition Effect on EPS If the consideration is completely in shares, one of the effects would be a dilution in EPS suffered by Predator Company. The effect of dilution
Spreads The difference between two futures price is referred to as ‘spread'. For the same underlying good, if there are two different prices on two different expiration dates, t
What is a sunk cost? Is it relevant when evaluating a proposed capital budgeting project? Explain. A sunk cost is a cash flow that has already takes placed, or that will take
Organization and Management Pattern of UTI UTI has a full-time Chairman with an Executive Trustee reporting to him. The Executive Trustee looks after the Corporate Office, Zona
Modern / Discounting Cash Flow Techniques : These methods generally are of more use to businesses in their investment decisions. They take into account the time value of money and
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