Explain the following:
(i) Securitization Services
(ii) Factoring and Forfaiting Services
(i) Securitization Services
Securitization is the process of converting illiquid assets into securities, which can be traded in the market. Securitization services refer to the services provided by financial institutions, such as investment banks, to facilitate this process. The basic idea behind securitization is to pool a large number of assets, such as loans, mortgages, or receivables, and issue securities backed by these assets. The cash flows from the assets are then used to pay the interest and principal on the securities.
Securitization is a popular way for banks and other financial institutions to raise funds. It allows them to convert illiquid assets, which are not easily tradable in the market, into liquid securities, which can be easily traded. This helps financial institutions to manage their balance sheets better and reduce their exposure to risks.
There are several types of securities that can be created through securitization. The most common types are asset-backed securities (ABS) and mortgage-backed securities (MBS). ABS are securities backed by a pool of assets, such as auto loans, credit card receivables, or student loans. MBS are securities ____ ______ ________ __________ _________ __________ _________.
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