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Sir, what does Securitisation mean & how it works?
BPP says that “Securitisation is the process of converting illiquid assets into marketable asset-backed securities”. (I don’t understand this – please explain)
Secondly, what does negotiable & non-negotiable securities mean?
“Securities that are issued in an over the counter market can be negotiable or non-negotiable”.
– Negotiable securities can be resold.
– Non-negotiable securities cannot be resoldI don’t know why BPP bothers with either of these because they are not really examinable (certainly not in any detail whatsoever) until Paper AFM – not in Paper FM.
Here is a little examples of what securitisation is: A singer called David Bowie was earning a lot of income each year from music that he had written and recorded in the past. What he did was issue bonds and received a lot of money from the people who bought the bonds. Instead of the investors receiving interest each year, then then received the income from his music. In that way, instead of him receiving income each year in the future he received a very large amount immediately. We say that he had securitised his future income.
If something is negotiable it can be sold to other people. If something is non-negotiable it cannot be sold to other people. Things like shares are traded on the stock exchange are are negotiable. Over-the counter arrangements are private deals with (for example) a bank, and might be able to be sold to others, but that depends on the initial agreement with the bank.
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