Brief introduction of asset backed security, Financial Management

  • An asset-backed security is a type of bond or note that is based on a pool of assets, or collateralized by the cash flows from a specified pool of underlying assets. Assets are pooled to make otherwise minor and uneconomical investments worthwhile, while also reducing risk by diversifying the underlying assets. Securitization makes these assets available for investment to a broader set of investors. These asset pools can be made of any type of receivable, like credit card payments, auto loans, and mortgages. Typically, the securitized assets might be highly illiquid and private in nature.

  • The underlying assets in an asset-backed security can be either an amortizing or a non-amortizing asset.  While in amortizing assets, the loan repayment is distributed over the life of the loan, non-amortizing assets do not have a particular fixed pattern of payment of interest and repayment of principal.

  • Asset-backed securities can be classified as fixed and floating rate asset-backed securities. A floating rate asset-backed security is one whose underlying pool consists of loans or receivables carrying a floating rate. In fixed rate
    asset-backed securities, the underlying pool consists of fixed-rate loans whereas in a floating rate loan, the security is divided into one or more floating rate tranches.

  • Credit enhancement encompasses a variety of provisions that may be used to reduce the credit risk of an obligation. It refers to one or more initiatives the originator in a securitization structure has to enhance the security, credit or the rating of the securitized instrument, i.e., by providing a cash collateral, profit retention, third party guarantee, etc.

  • An asset-backed security can either have a pass-through or a pay-through structure. In a pass-through structure, each certificate holder will be allotted a proportion of the cash flow from the underlying pool of loans or receivables on a pro rata basis. In a pay-through structure, while a senior tranche can be split into different tranches, a subordinated tranche cannot be done so.

Posted Date: 9/8/2012 9:14:42 AM | Location : United States

Related Discussions:- Brief introduction of asset backed security, Assignment Help, Ask Question on Brief introduction of asset backed security, Get Answer, Expert's Help, Brief introduction of asset backed security Discussions

Write discussion on Brief introduction of asset backed security
Your posts are moderated
Related Questions
What does the "weight" refer to in the weighted average cost of capital? The weight pass on to in weighted average cost of capital refers to the portion of the total capital in

Ledgers: Ledgers record all the entries into the Cash Books. They use the concept of 'double entry' bookkeeping where every ledger entry must be accompanied by another ledger e

what is mean by breakeven point

Q. Implications of Gordons fundamental valuation? Explanation: - The implications of Gordon's fundamental valuation may be as below: (1) While the rate of return of the firm

Do these two problems in Excel. Balance Sheet and Income Statement.  The following information is used for the first two problems.  Problem 1 is the income statement and problem 2

A yield spread between any two bond issues can be easily computed when the maturity date for both these issues is same. The yield spread between these two bond

What are the techniques of financial management There are two widely-discussed techniques: (i) Profit maximisation approach and (ii) Wealth maximisation approach.

Assets Pension insurance companies' assets can be divided into five main investment classes: cash, long-term bonds, stocks, property and loans. The total returns on the assets

Country analysis and political risk Country analysis could use tools for example PEST factors in order to strategically analyse countries. Political risk

Using a spreadsheet program or a calculator, solve Tracy’s problem of how often to go to the ATM when the nominal interest rate on her bank account is 10 percent, she spends $30 ea