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Which TWO of the following statements are correct?
1 Securitisation is the conversion of illiquid assets into marketable securities
2 The reverse yield gap refers to equity yields being higher than debt yields
3 Disintermediation arises where borrowers deal directly with lending individuals
4 Demand-pull inflation will occur when there are increases in production costs
independent to the state of demandsir im finding it hard to understand the statement 1 and 3
thank you sir
A good example of securitisation is David Bowie, who was a pop singer. He was getting income from his records but it was an illiquid asset (it was not an asset that could be easily bought and sold). He sold bonds so that he got the money from the sale of the bonds (which were then marketable) and the people who bought the bonds got the income from his records instead of interest. The illiquid assets had been converted into marketable securities.
An example of disintermediarisation is (as I explain in my lectures!!), suppose you want to borrow money (for which you will pay interest) and I want to invest money (to earn interest). Usually you would go to a bank to borrow the money, and the money that the bank is lending is money that other people (like me) had deposited with them. So they charge you more interest than they are paying me, so that they can make a profit. The bank is the intermediary. Disintermediariation is where instead of going via a bank, I lend money to you directly. That way we can both save money (but there is more risk involved because there is the risk that you never repay me the money). Doing it through a bank means that they have the risk and not me.
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