Securitization, Financial Management

Assignment Help:

Securitization refers to conversion of illiquid assets to liquid assets by converting longer duration cash flows into shorter duration ones. Securitization denotes the process of selling assets by the person holding it to an intermediary, who in turn will break such assets into marketable securities. The assets may virtually be anything ranging from future sales of cinema tickets and airline tickets to hire purchase deals and Non-Performing Assets (NPAs).

Securitization is a process through which illiquid assets are transformed into a more liquid form of assets and distributed to a broad range of investors through the capital market. Despite the obvious advantages this process confers on institutions and companies - especially those having large receivables - securitization in India has not taken off. So far confined to a few deals involving some non-banking companies and foreign banks, securitization waits for all round initiatives before it can emerge as an important capital market instrument. One significant obstacle might have been the fact that despite being talked about so much, very few people can understand it. A securitized transaction is best understood through by a typical example. A Non-Banking Finance Company (NBFC), which has lent money to truck operators for the purchase of vehicles, will have in its balance sheet these assets for a fairly long period (until the hire purchase transactions are paid-off). Funds used to finance the purchase of these vehicles, therefore, get blocked. Securitization will help in removing these relatively illiquid assets from the NBFC's balance sheet. By conveniently sending them out to other investors, who now basically buy negotiable instruments, it will be able to recycle its funds. The security for the new investors will be the expected cash flow from the securitized assets. 

 


Related Discussions:- Securitization

Weighted average cost of capital of firm, Weighted average cost of capital ...

Weighted average cost of capital of Firm: Use the following information to answer the questions. Security Beta Expected retur

Capital gain or loss, An Investor can receive income from this ...

An Investor can receive income from this source when the bonds purchased at discount are held up to maturity or when he sells the bond before ma

How would the market price of a bond be affected, All other things held con...

All other things held constant, how would the market price of a bond be affected if coupon interest payments were made semiannually instead of annually? The majority of bonds i

Illustrate modern method of measurements, Q. Illustrate Modern Method of Me...

Q. Illustrate Modern Method of Measurements? Holding Period Yield: The holding period yield is one of the modern techniques on Measuring return. It serves two purposes: a) I

What are the measures of growth, What are the Measures of growth Sa...

What are the Measures of growth Sales or market share Number of products or markets Employees Profit Number of retail stores

Dividend policies, explain for factors influencing design for dividend poli...

explain for factors influencing design for dividend policies

Brixton plans to sell the applicable computer, Brixton Products is consider...

Brixton Products is considering the purchase of a new $520,000 computer-based entry order system.  The cost of the system will be depreciated on a straight-line basis over its five

What are the material items are carried out, What are the Material items ar...

What are the Material items are carried out Material items would have an impact on: Audit tests carried out. For illustration compliance based testing (relying on contro

Dividend decision, Dividend Decision: The Dividend Decision is a decis...

Dividend Decision: The Dividend Decision is a decision taken by the directors of a company. It relates to the timing of any cash payments and amount made to the company's stoc

Accounting change, Q. Accounting Change? Accounting Change - Change i...

Q. Accounting Change? Accounting Change - Change in (1) an accounting principle (2) an accounting estimate or (3)the reporting entity which necessitates DISCLOSURE and explan

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd