9ed FIN421 PP_CH001

Are placed into a pool and new securities are issued

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: oreign exchange Diversification to improve performance Instruments and vehicles continue to Instruments develop (WEBs) develop Information and analysis improves 1-39 Key Trends - Securitization • Loans of a given type such as mortgages are placed into a ‘pool’ and new securities are issued that use the loan payments as collateral. that • The securities are marketable and are purchased The by many institutions. by “Shadow banking system” • End result is more investment opportunities for End purchasers, and spreading loan credit risk among more institutions more 1-40 Securitization – Cont. Securitization has grown rapidly due to Securitization • Changes in financial institutions and regulation Changes permitting its growth, particularly lower capital requirements on securitized loans, requirements • Improvement in information capabilities, • Credit enhancement provided by pool issuers has Credit improved marketability. improved 1-41 Figure 1.1 Asset-backed Securities Outstanding 1-42 Key Trends Financial Engineering Repackaging cash flows of a security to enhance Repackaging marketability (carried out by Financial Intermediaries) Financial Bundling and unbundling of cash flows o Bundling: Bundling: Combining more than one asset into a composite security, for example securities sold backed by a pool of mortgages. of o Unbundling Selling separate claims to the cash flows of one Selling security, for example a CMO security, 1-43 Computer Networks Online low cost trading Information made cheaply and widely Information available available Direct trading among investors via Direct electronic communication networks electronic 1-44 The Future Globalization will continue and investors will Globalization have far more investment opportunities than in the past in Securitization will continue to grow after the S...
View Full Document

This document was uploaded on 02/27/2014 for the course FIN Derivative at San Diego State.

Ask a homework question - tutors are online