Brief View on Asset Backed Securities: ABS

By Maya bhat -

ABS is a debt security that is based on pool of assets or is a securitized pool of assets.

  • Debt security: Here security is a negotiable instrument which represents financial values and debt refers to the owed assets or future purchasing power. Hence debt security means security for guarantee of prompt payment for owing assets. In other words debt security are debenture, bonds, deposits, note and commercial papers and the holder of these securities are entitle to make payment of interest and principal together with certain contractual rights in terms of issue E.G> right to receive information.
  • Securitization: is the process of pooling/grouping and repackaging of cashflows producing financial assets into securities for the purpose of minimizing risks and maximum benefits to the users and they are sold to the investors.
  • Negotiable instrument: is a transferable, signed document promising payment to the bearer of certain sum of money on a future date or on demand. E.G> cheque, promissory note, bill of exchange.

Now let’s discuss why are the assets securitized?

    1. Make minor and uneconomical investments, while reducing risk from diversifying the underlying assets.
    2. Securitized assets are highly liquid (means assets can be bought and sold in a short period of time with small price changes) and private in nature.
    3. It is used for credit enhancement by creating security that has a higher rating than the issuing company which monetizes the assets.

· Credit enhancement: means providing various ways or means for reducing the credit risk of an obligation.

· Credit risk: risk due to counterparty’s uncertainty to meet the obligations.

    1. Allows paying a lower rate of interest than via secured bank loan or debt issuance.

Types:

Ø Home equity loans or HEL: type of loan in which borrower uses the equity at home as collateral i.e. borrower’s asset is forfeited to the lender in case the borrower is unable to pay the principal and interest on loan. in other words, HEL are loans which are useful in financial help such as major home repair, medical bills or education etc.

Ø Auto loans are securities issued backed by pool of underlying assets for auto relate loans.

Ø Credit card receivables

Ø Student education loans

Comments

Post a Comment

Popular posts from this blog

iTS 2009!!!! Late entry

By Maya bhat -
Its new year and my first blog in this year...This year I will be wiritng blogs relating in all areas with new experiments,truth of life,interesting facts,review from movies,books and many other things... So let's start writing ... Lets Make something that makes 2009 rememberable in your life........Start doing things (meant to say not bad things only good)which you have not done before such as writing a blog, respecting people etc... Happy, safe and prosperous 2009!!!!!!!!!!!!!
Read more

karapudi!!! chutney for idli...spicy lovers;;;its for uuuuuu

By Maya bhat -
Today I had prepared idli and was thinking about what chutney do I prepare... Was tired of making, eating all the usual chutney so decided to do something different... Karapudi, one of the chutneys prepared in andhra... preparation just takes 5 minutes with ingredients which are available for day today needs at home... They are: Red Chillies - 5-6 Coriander seeds or dhania or cotambiri whatever u call- 5-6 tsp Cumin seeds or jeera-2-3tsp Dry tamarind little Salt to taste Garlic flakes- 7-8 Oil- 1tsp Method/steps in preparation: Heat oil in a pan, add coriander seeds, red chilles and jeera simultaneously and fry 3-4 mins in a low flame. Grind the fried items with dry tamarind, salt and make it like powder. Now crush/smash the garlic flakes and add to the grind masala... Karapudi ready, eat mixing little oil or ghee.. serve with idli or with rice...
Read more

Did You Know!!!! sum facts

By Maya bhat -
Did you know the below facts? I also did not know... I saw these while reading vegetarian conducted in March 2000 . Kids who have food along with their parents eat more of fruits and vegetables and less of junk food compared to kids who feed themselves or eat alone.Also these kids who eat with parents have in general more consumption of calcium,iron,vitamin B,E and C. Athletic girls who drink soda are five times as likely to get fractures as girls who don't drink soda.This is because the phosphoric acid in these drinks lessens the body's ability to absorb calcium needed to strengthen body bones. Also children of average age between 8 to 18 watch at least 3hrs of television i.e a couch potato lifestyle and study shows that this is main result of obesity in children. Have a healthy life....
Read more