The concept of securitisation is a process in which individual loans, receivables or claims are pooled together, under written and issued to investors in the form of market securities. The assets appearing in the financial statements of an institution and long term receivables are made liquid by issuance of marketable securities against them. Cash generated from a mix of assets is converted to negotiable instruments or assignable debt bonds which can be sold to investors. This is known as securitization because the form of instruments used in the process to obtain funds from the investors is securities. Let us understand securitisation through an example.
Forex trading is a way of investing, where currencies are bought and sold against each other depending on how you are the entrepreneur, based on your valuation or signal, believe that the money will go up and decrease in value against one another. When your broker offers you a price for a currency exchange, he offers two prices for each currency pair; a Bid price (you sell the offer) and an Ask price (you buy the asking price). These rules make sense if you feel like an auction; A person who wants to buy something at an auction puts an offer, which is the price they want to pay. In this case, the international bank wants to buy if you sell them on their bid price. Also, at an auction, someone who wants to sell something will have an asking price, which is the price at which he wants to
Creditors who have a security interest (lien) are normally considered secured creditors. The interest of the creditors in the property of the debtors is known as “collateral”. Thus, if the debtors become insolvent, the creditors have the right to take away that collateral. The most commonly used secured claims are - mortgage and car loan. This means that mortgage creditors have liens on the houses of the debtors and the creditors of the car have liens on the cars of the debtors.
Derivative pricing nowadays has been a dispute among finance researchers, finance workers, and experts. Derivative in finance means a financial asset, which is derived from another asset. Another asset, which usually called underlying entity, can be an index, asset, or interest rate. Derivatives can be used for a number of purposes which one of them is option pricing. Option in finance has a meaning of a contract giving the buyer a right to buy the underlying asset or to sell it at a specified strike price (can be set by looking at market price) and date; also depending on which option they bought.
Individuals: The individuals here means the tourists who exchange the money while travelling abroad and migrants who send part of their earnings to family members living in their home countries. b. Firms: The firm means importers and exporters where an exporter prefers to get his payments in his home currency or in a convertible currency. Importers require the foreign exchange to make payments for their products that are imported. c. Banks: The individuals and firms approach banks to exchange the currency and the banks deal other banks which has foreign exchange departments on behalf of its customers.
The Role of Cash Reserves in Fractional Reserve Banking 1. Introduction The essay seeks to explain the function that cash reserves play in the fractional reserve banking system. Two types of banks operate in this banking system, monetary savings banks and private commercial banks, both banks are unique in a sense of their ability to create money. This ability is explained that, these banks keep fraction of their outstanding deposits liabilities as cash in reserves against these deposits in the process of providing loans and spending. The focus of the essay will be on commercial banks, as they have added odd ability of money creation with its own debt.
Introduction The main reason behind the crisis was the consideration that the prices of houses cannot decline that lead to providing mortgage to subprime customers who were not worthy of the loan. As soon as the customers defaulted, the crisis started. According to E&Y report (2012), the impact was so intense that number of IPO’s and the amount of funds exchanged between the financial institutions declines by as much as 50% of the number before the crisis. Even though the financial institutions were in need of money, it was not the right time to raise equity or debt since there was scarcity of capital in the market. Most of the financial institutions had huge funds as bad debt and there were no menders at the time.
What it means: A credit derivative is a financial instrument which results in a trade between two parties. One of them is the protection buyer which makes periodic payments to another party, the protection seller. In this trade the protection seller indemnifies the protection buyer against any losses he experiences as a consequence of the default of some credit-risky reference asset. Credit derivative is one of the various instruments and techniques which are designed to separate and then transfer the credit risk. They effectively distribute the credit risk across the market and as a result help the institutions to deal with the risk management objectives and maintain customer relationships.
A trade transaction requires a seller of goods and services as well as a buyer. Various intermediaries such as banks and financial institutions can facilitate these transactions by financing the trade. While a seller or exporter can require the purchaser to prepay for goods shipped, the purchaser may wish to reduce risk by requiring the seller to document the goods that have been shipped. Banks may assist by providing various forms of support. Other forms of trade finance can include documentary collection, trade credit insurance, factoring or forfaiting.
Mortgage market is a place where the long-term collateralized loans can be acquired by borrowers (Mishkin & Eakins, 2000). A mortgage is a legal agreement on which the deal between the owner of the property and the borrower on a specific time payment period and interest rates as security for a loan. Similar to capital market, mortgage is in long-term and the loan is secured by real estate. A developer may get a mortgage to finance the construction of working building or a family may get a mortgage loan to buy assets like house or car. The ownership of the assets will shift to the borrower once the borrower clear the full payment of loan in some combination of principal and interest on the time it mature.