RBI Grade B daily writing practice 18th February 2021

Short note on

A. Securitisation –

Securitization is the procedure where an issuer designs a marketable financial instrument by merging or pooling various financial assets into one group. The issuer then sells this group of repackaged assets to investors. Securitization offers opportunities for investors and frees up capital for originators, both of which promote liquidity in the marketplace.

Following are the benefits of Securitization-

  • Turns illiquid assets into liquid ones
  • Frees up capital for the originator
  • Provides income for investors
  • Lets small investor play

B. Swaps-

A swap is an agreement for a financial exchange in which one of the two parties promises to make, with an established frequency, a series of payments, in exchange for receiving another set of payments from the other party. These flows normally respond to interest payments based on the nominal amount of the swap.

The objective of a swap is to change one scheme of payments into another one of a different nature, which is more suitable to the needs or objectives of the parties, who could be retail clients, investors, or large companies.

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