Securitization, Financial Management

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. 

 

Posted Date: 9/8/2012 7:46:54 AM | Location : United States







Related Discussions:- Securitization, Assignment Help, Ask Question on Securitization, Get Answer, Expert's Help, Securitization Discussions

Write discussion on Securitization
Your posts are moderated
Related Questions
The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''''s expected net income

#questiBabar Corporation''s present capital structure, which is also its target capital structure I, is 40% debt and 60% common equity. Next year''s net income is projected to be R

Explain the methods used to treat the obsolete stock Review Inventory for obsolete items Make materials review board Include an obsolescence review in the closing p

Explain how the special drawing rights (SDR) is constructed. Also, discuss the circumstances under which the SDR was created. Answer:   SDR was made by the IMF in 1970 as a new r

capital structure

Failure of mergers and takeovers Failure of mergers and takeovers Poor strategic plan will result in slow or failed integration. Integra

Q. Explain Functions of Finance Financial Management? Functions of Finance or else Financial Management: - The functions of Financial Management are: (1) Determining the Fin

How is present value affected by a change in the discount rate? Present value is inversely associated to the discount rate.  In other words current value moves in the opposite

You are considering starting a walk-in-clinic. Your financial projections for the first year of operation are as follows: Revenues (10,000 visits) $400,000 Wages and benefits $220,

Call provision is the right of the issuer to call back and retire the issued bonds before the maturity date. The issuer may call the bond and retire the bond by paying