Lending and Borrowing

If you take money from me then I am lending it to you. You are borrowing from me. Securitised lending is when I lend you money secured on a specific asset - that means that if you do not repay me and go bankrupt then I can take that asset for myself (and then sell it). If my lending is not secured then I have to share whatever money is available with all of the other lenders.

In the kit it says, securitisation is the conversion of illiquid assets into marketable securities. I don't understand this definition.

Securitisation is not the same as secured lending. To explain securitisation let me give you a real life example. There was a famous singer called David Bowie who was earning money each year from sales of his records (illiquid assets - his future income was great but it wasn't something he could sell as you can with tangible assets). So what he did was issue bonds. Investors paid money to him for the bonds and in return they got the future income from the records (instead of getting interest in the normal way). They could sell their bonds to others later if they wanted to. That way, David Bowie converted his future income into an enormous 'one-off' receipt from the investors. (At the time he did it he probably knew that he did not have so long to live, so it was a great idea :-) )

Haha, thank you for the example. I love David Bowie's music.

:-)