Unit- 2, Assignment No. 1


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  Assignment no- 2 Q1. What is the theoretical basis of banking operations in india?ANS.1        Q2. Explain the structure and process of securitization. Also explain the playersinvolved in it? Ans. 2 Securitization is the financial practice of pooling various types of contractual debt, suchas residential mortgages, commercial mortgages, auto loans, or credit card debt obligations, andselling said consolidated debt as pass-through securities, or collateralized mortgageobligation(CMOs) to various investors. The cash collected from the financial instrumentsunderlying the security is paid to the various investors who had advance money for that right.Securities backed by residential mortgage receivables are called residential-mortgage-backedsecurities(RMBS), while those backed by other types of receivables areasset-backedsecurities(ABS).Securitization can provide many advantages, such as lower cost of capital, diversification for investors, enhanced liquidity and others. [2]  However, critics have suggested that the complexityinherent in securitization can limit investors' ability to monitor risk, and that competitivesecuritization markets with multiple securitizers may be particularly prone to sharp declines inunderwriting standards. Securitization has evolved from its tentative beginnings in the late 1970sto an estimated outstanding $10.24 trillion in the United States and $2.25 trillion in Europe as of the 2nd quarter of 2008. StructurePooling and transfer The srcinator initially owns the assets engaged in the deal. This is typically a company lookingto raise capital, restructure debt, or otherwise adjust its finances. Under traditionalcorporate   finance concepts, such a company would have three options to raise new capital: a loan,a  bond issue,or issuance of  stock .However, stock offerings dilute the ownership and control of the company, while loan or bond financing is often prohibitively expensive due to thecompany's credit rating and the associated rise in interest rates. Because of these structural   issues, the srcinator typically needs the help of an investment bank  (the arranger ) in setting upthe structure of the transaction. Issuance
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