Answer following questions How does the bundling of assets i

Answer following questions:

How does the bundling of assets improve credit quality?

Besides bundling assets together, what are two other measures that can be taken to enhance credit quality?

Why would an organization want to securitize its assets?

What makes asset backed securities attractive to investors?

How might securitization help improve the quality of lives for people living in developing countries?

Solution

A) Bundling of assets or creating an asset pool enhances credit quality as the risk adjusted value of the pool is greater than that of individual assets.

B) The other measures which can be taken to enhance credit quality are:

I) Diversification of portfolio

II) Investing in low risk bonds

C) An organization would want to securitize it\'s assets to reduce it\'s debts and to bring in additional liquidity.

D) Asset backed securities gives an opportunity to the investors to invest in diversified income generating assets and to reduce credit risk as they use a technique called credit tranching .