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

Floating-rate securities that have adjustable quoted margin, Floaters ...

Floaters that can be classified under this head are: 1. Stepped Spread Floaters 2.  Extendible Reset Bonds

Cost of preference capital, Cost of Preference capital (K ) The fixed ...

Cost of Preference capital (K ) The fixed rate of dividend payable to the Preference share holders is the cost of Preference capital.  Exactly, the cost of Preference capital

Decision-tree approaches, 1024x768 Normal 0 fals...

1024x768 Normal 0 false false false EN-IN X-NONE X-NONE

Money market instruments, Just as any other financial market, money m...

Just as any other financial market, money market also involves transfer of funds in exchange for financial assets. Because of the nature of the money market, the

What do you mean by accrued expenses, Q. What do you mean by Accrued Expens...

Q. What do you mean by Accrued Expenses? Accrued expenses are the expenses which have been incurred but not yet due and hence not yet paid also. These simply represent a liabil

Mortgages, A mortgage may be defined as a pledge of property ...

A mortgage may be defined as a pledge of property to secure a debt payment; in this context, we will use the term property to mean real estate. If the

Calculate the net present value of a purchase of earthmover, Your construct...

Your construction company is evaluating the proposed acquisition of a new earthmover. A consulting company you hired developed the following analysis last year at a cost to you of

What do you understand by business cycle, Q. What do you understand by Busi...

Q. What do you understand by Business cycle? Business cycle: business cycle refers to the alternate expansion and contraction in the general business activity. in a period of t

Contribution plans-pension fund plans, Defined Contribution Plans In de...

Defined Contribution Plans In defined contribution plans, the contributions made by or on behalf of the employee are accumulated and paid on retirement along with such return a

What is current asset, Q. What is Current Asset? Current Asset - ASSET ...

Q. What is Current Asset? Current Asset - ASSET which one can reasonably expect to convert into cash, sell or consume in operations within a single operating cycle or within a

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