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Create a 7 page essay paper that discusses Explain what you understand by the term Securitisation and consider why a bank might choose to securitise some of its loans.It ends up losing some cash flows
Create a 7 page essay paper that discusses Explain what you understand by the term Securitisation and consider why a bank might choose to securitise some of its loans.
It ends up losing some cash flows or assets in return for the cash. This debt also not reflected in the bane sheet of the ultimate bower. Therefore, securitisation can be viewed as a method of disposing off a cash flows stream.
Besides the impact on the borrower, securitisation benefits investors as well.
It increases the variety of choices of investments available. The securities that are asset-backed by way of securitisation can be easily analysed since investors need only to undertake an evaluation of cash flows from a very small assets pool. This saves them from having to evaluate the entire complex business.
The most commonly securitised assets are loans of a single kind or another type which when pooled becomes an investment of low risk. Also, it means that in the context of the issuer, it is often a borrowing way that’s very cheap. (Moneyterms.co.uk, 2009).
This is a study set out to discuss this issue of securitisation and to this there will be a vivid answering of the questions “what is securitisation?” and “why do banks choose to securitise some of their loans?”
Securitisation is an expression that has become more common in usage and it’s usually used the numerous mechanisms of transferring risks between the parties involved. It usually includes the description of the scale or disposal of risk assets in an absolute manner or the synthetic transfer of particular risk aspects. It is used in several contexts and among various parties who indulge in contracts.
More comprehensively, it’s defined as the process via which receivables, loans or other relevant assets are put together. The cash flows that go with the assets and also the economic values deployed to aid payments of the securities related. The related securities are issued in both private and public markets by issuers or on their behalf, which use the process of securitisation to
