Asset securitization is the transformation of a mix of illiquid individual loans that are combined into relatively similar pools and transformed into highly liquid bonds traded in securities markets and usually, when securities are backed by non-mortgage loans, they are referred to as asset-backed securities (ABS). Securities issued exclusively against credit and loans with mortgage guarantees are referred to as mortgage-backed securities (MBS). Assets like ABS, MBS and it likes are now widely spread in fixed income portfolios at both the institutional and individual investor level. Although the largest and most well known example of asset securitization is the residential mortgage market.… Read the rest
International Finance
International finance is the branch of economics that studies the dynamics of foreign exchange,foreign direct investment and how these affect international trade. Also studies the international projects, international investment and the international capital flow .International Finance can be broadly defined, as the study of the financial decisions taken by a multinational corporation in the area of international business i.e. global corporate finance. International finance draws much of its background from the preliminary studies in the topics of corporate finance such as capital budgeting, portfolio theory and cost of capital but now viewed in the international dimension.
The Role of Asset Securitization in Financial Crisis
The financial crisis showed its first signs in the first quarter of 2006 when the housing market turned. A number of subprime mortgages, that were designed with a high interest payment began to default. Many of the loans were highly risky and only possible due to the clever creation of products like “2/28” and “3/27” adjustable rate mortgages (ARMs). These loans offered a fixed rate for the first two or three years, and then adjustable rates for the remaining twenty- eight or twenty-seven years, respectively. After the first two or three years, the adjustment of rates would be substantial enough as to be unaffordable for the subprime borrowers; thus, the mortgages were designed to be refinanced.… Read the rest
Implications of Asset Securitization
Asset securitization can be defined as the partial or complete segregation of a specific set of cash flows from a corporation’s other assets and the issuance of securities based on these cash flows, i.e exchanging one asset for another. The types of financial assets involved in asset securitization transactions are often receivables. The practice of securitization originated with the sale of securities backed by residential mortgages, but the framework of asset securitization has rapidly expanded from its initial root of mortgages and receivables to other more variable cash flows in home equity loan markets, commercial loan markets, credit card receivables, auto loans, small-business loans, corporate loans, state lottery winnings, and litigation settlement payments and other types of loans.… Read the rest
Foreign Currency Swap or Foreign Exchange Swap
Each entity has a different access and different needs in the international financial markets. Companies receive more favorable credit ratings in their country of domicile than in the country in which they need to raise capital. Investors are likely to demand a lower return from a domestic company, which they are more familiar with than from a foreign company. In some cases a company may be unable to raise capital in a certain currency. Currency swaps are also used to lower the risk of currency exposure or to change returns on investment into another, more favorable currency. Therefore, currency swaps are used to exchange assets or capital in one currency for another for the purpose of financial management.… Read the rest
Effective Communications in Investor Relations
Corporations worldwide work daily to increase the value of their stock for the investing public. In order to exploit this value, businesses must constantly make every effort to extensively communicate to their investors and potential investors. In view of this, investor relations are a vital part of business strategy, principally in the area of communication. Corporate departments involved with investor directions must make a necessary connection between efficient communication and company goals. Since communication is starting to play such an important role in investor relations, corporate communication programs are being created not only to participate in financial areas, but also to take part in media relations and other public communication.… Read the rest
Emerging Trends in International Capital Markets
Three interrelated developments in global capital markets are:
- The sustained rise in gross capital flows relative to net flows;
- The increasing importance of securitized forms of capital flows; and
- The growing concentration of financial institutions and financial markets.
Taken together these trends may signal what some others have referred to as a ‘quiet opening’ of the capital account of the balance of payments, which is resulting in the development, strengthening and growing integration of domestic financial systems within the international financial system. Finance is being rationalized across national borders, resulting in a breakdown in many countries in the distinction between onshore and offshore finance.… Read the rest