This paper occupies with asset-backed securities as a financing instrument for companies and as an investment for investors. It shows the advantages of this financing vehicle. Firms can get a quick access to the financial markets and clean up their balance sheet and creditworthiness by selling receivables out of their assets. Investors get a good return on their input and help organizations financing themselves. But heavy risks, like securitization risks, regulatory risks, counterpart risks, economical risks and wrong rating risks can endanger the financial transaction and lead into a financial default. The greed of investment banks, bad economical circumstances and at least a deficient risk management of companies helped ABS products becoming a main role during the financial crisis of 2007. During the financial crisis ABS products lost their natural status as financing instruments and became something like financial investments.
Table of Contents
Executive Summary
Table of Contents
List of Abbreviations
List of Figures
1 Introduction
2 Problem Definition
3 Objectives
4 Methodology
5 Main Part
5.1 Product Introduction and Market Functions of
Asset-Backed-Securities
5.1.1 Market Overview and Development
5.1.2 Product Definition and Types
5.1.3 Securitization Process of Asset-Backed-Securities
5.2 The Need for Asset-Backed-Securities
5.3 Risks of Asset-Backed-Securities
5.4 The Financial Crisis 2007: A Short Summary
5.5 The Connection between Asset-Backed-Securities and the Financial Crisis
6 Results and Conclusion
Bibliography
Frequently Asked Questions
What are Asset-Backed Securities (ABS)?
ABS are financial instruments created by pooling receivables (like debts) and selling them to investors as consolidated securities.
What are the main advantages of ABS for companies?
Companies gain quick access to financial markets, improve liquidity, and can clean up their balance sheets by selling off receivables.
What risks are associated with investing in ABS?
Major risks include securitization risks, regulatory risks, counterparty risks, and the danger of incorrect credit ratings.
How did ABS contribute to the 2007 financial crisis?
A combination of investment bank greed, poor risk management, and the misvaluation of risky subprime assets led to a global financial default.
What is the "securitization process"?
It is the process of transforming illiquid assets into liquid securities that can be traded on the financial markets.
Why did ABS change status during the financial crisis?
During the crisis, ABS products lost their status as simple financing instruments and became highly speculative financial investments.
- Quote paper
- Diplom-Kaufmann (FH) Johann Gross (Author), 2013, Asset Backed Securities, Munich, GRIN Verlag, https://www.grin.com/document/212861
