Explanation:
Securitization is correctly defined as the process of converting a group of nonmarketable assets, or expected future cash flows on the assets, into units of marketable securities. This process typically involves pooling various types of loans or receivables and then issuing securities backed by these assets, which can then be sold to investors. Choice A is incorrect because it describes collateralization, not securitization. Choice B is incorrect because it describes a function of a bankruptcy-remote entity but not securitization itself. Choice C is incorrect because acquiring ABSs is an investment activity, not the definition of securitization.
Q.922 Ahmed Saeed has recently graduated from the Frankfurt Finance School with a Bachelor's degree. He was invited by a small-size audit firm that provides audit services to small-medium companies and startups to take a test in order to join the firm as a junior risk analyst. In the test, he was asked to identify the definition of securitization. Which of the following is the appropriate definition of securitization?
A
Securitization is the process of securing the mortgage with a security or collateral, which the lender can use in case of default.
B
Securitization is the process of setting a bankruptcy-remote entity with the sole purpose issuing bank loans to individual borrowers.
C
Securitization is the process of setting a bankruptcy-remote entity with the sole purpose of acquiring asset-backed securities (ABSs).
D
Securitization is the process of converting a group of nonmarketable assets, or expected future cash flows on the assets, into units of marketable securities.
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