- Joined
- 10/2/07
- Messages
- 27
- Points
- 11
Hello People,
I have a doubt, try to solve it based on the knowledge you have acquired about SPV (special purpose vehicle) alternatively known as SPE (Special Purpose Entity) or SPC (Special Purpose Company).
So the entire process of Securitisation is (as far as my knowledge goes):
A lender (say X Bank) lends money to a borrower (say Y ltd.)
now to cover the credit risk involved owing to the credit score of the borrower. X gets into a credit derivative (say CDS (credit default swap) )and here comes into the picture our hero of the day (the SPV).
Now X and SPV agrees upon either ABS (asset backed security) or Future cash flow security.
X expects to convert his illiquid assests to liquid assests and thus expects the SPV to provide X with all the money which would have been subject to Y's creditworthiness.
So SPV approaches certain QIB's (Qualified Institutional Investors) and these people if interested put their money in. SPV when generates enough money provides it to X. Thus, the financial market scenario is now converted into capital market. In short the non-marketable commodity is converted to marketable. (HERE IS THE DOUBT) 1> How is this traded on an exchange. (i am clueless)
2> What happens to Y. Even if he defaulted X does not care since X has got its money back. But Y probably dont even realise the existence of CDS.
3> How does the QIB's get their money back, leave apart profiting from it. Also who are these QIB's.
4> How does the SPV (like ARCIL) earn.
5> Where would this sector fall under the carrers in Financial Market.
6> How does securitisation effect an economy in general. (is the connectivity betwwen financial market-capital market a win-win situation)
7> And lastly, if securitisation is so successful, how could it not prevent the subprime issue of today. Did'nt the companies how offered home loans to Y, securitised their assets.
p.s: i would really appreciate a response to this, just providing me link to some relevant manifest present on the internet might not help. But that backed by a personal explanation would certainly clear the obscurity in this area.
Thank You
I have a doubt, try to solve it based on the knowledge you have acquired about SPV (special purpose vehicle) alternatively known as SPE (Special Purpose Entity) or SPC (Special Purpose Company).
So the entire process of Securitisation is (as far as my knowledge goes):
A lender (say X Bank) lends money to a borrower (say Y ltd.)
now to cover the credit risk involved owing to the credit score of the borrower. X gets into a credit derivative (say CDS (credit default swap) )and here comes into the picture our hero of the day (the SPV).
Now X and SPV agrees upon either ABS (asset backed security) or Future cash flow security.
X expects to convert his illiquid assests to liquid assests and thus expects the SPV to provide X with all the money which would have been subject to Y's creditworthiness.
So SPV approaches certain QIB's (Qualified Institutional Investors) and these people if interested put their money in. SPV when generates enough money provides it to X. Thus, the financial market scenario is now converted into capital market. In short the non-marketable commodity is converted to marketable. (HERE IS THE DOUBT) 1> How is this traded on an exchange. (i am clueless)
2> What happens to Y. Even if he defaulted X does not care since X has got its money back. But Y probably dont even realise the existence of CDS.
3> How does the QIB's get their money back, leave apart profiting from it. Also who are these QIB's.
4> How does the SPV (like ARCIL) earn.
5> Where would this sector fall under the carrers in Financial Market.
6> How does securitisation effect an economy in general. (is the connectivity betwwen financial market-capital market a win-win situation)
7> And lastly, if securitisation is so successful, how could it not prevent the subprime issue of today. Did'nt the companies how offered home loans to Y, securitised their assets.
p.s: i would really appreciate a response to this, just providing me link to some relevant manifest present on the internet might not help. But that backed by a personal explanation would certainly clear the obscurity in this area.
Thank You
