Question : The process of securitization involves:
Option 1: Issuing new shares to the public
Option 2: Converting assets into tradable securities
Option 3: Liquidating a company's assets
Option 4: Investing in government bonds
Correct Answer: Converting assets into tradable securities
Solution : The correct answer is (b) Converting assets into tradable securities.
The process of securitization involves converting assets, such as loans, mortgages, or other receivables, into tradable securities. It allows financial institutions to package and sell these assets to investors in the form of securities, typically in the form of asset-backed securities (ABS) or mortgage-backed securities (MBS). Securitization involves several steps. First, a financial institution pools together a group of similar assets, such as a collection of mortgages or auto loans. These assets are then transferred to a special purpose vehicle (SPV), which is a separate legal entity created specifically for the securitization transaction.
Securitization allows financial institutions to reduce risk exposure, free up capital, and access new sources of funding. It enables the transformation of illiquid assets into tradable securities, making them more attractive to investors.
Question : A stock split involves:
Option 1: Issuing additional shares to existing shareholders
Option 2: Combining multiple stocks into a single share
Option 3: Converting stocks into bonds
Option 4: Trading stocks on multiple exchanges
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