Which of the following statements describes the reasons for the proliferation of new types of securitization contracts?
A)The decline in interest rates gives rise to prepayment risk and the securitization contracts help investors manage the prepayment risk better.
B)The securitization contracts offer uninformed investors an instrument to reduce their handicap due to information asymmetry.
C)The securitization contracts offer the issuer higher revenues.
D)All of the above
E)a and b only

Question

Quizplus · Accepted Answer

All three statements are valid reasons for the proliferation of new types of securitization contracts. Securitization helps manage prepayment risk by pooling cash flows and offering investors various tranches with different levels of risk. Securitization also helps reduce information asymmetry by providing investors with standardized contracts and clearer information on the underlying assets. Finally, securitization can generate higher revenues for issuers by allowing them to access a broader pool of investors and offer more attractive terms.

Which of the Following Statements Describes the Reasons for the Proliferation