Which of the following best describes the benefits to the borrower of selling asset backed securities?
A) Due to the portfolio effect,the borrower can package up low quality accounts receivable and sell them for a premium price.
B) The borrower trades current cash flows for future cash flows.
C) The asset-backed security may carry a better credit rating.
D) The borrower has collateral tied to the asset backed security.

Question

Quizplus · Accepted Answer

Selling asset-backed securities may help the borrower obtain a better credit rating as they are able to transfer the risk of default to the investors who purchase the securities. This may lead to lower funding costs for the borrower in the future. Options A and B do not accurately describe the benefits of selling asset-backed securities, and option D is true but not the best answer.

Which of the Following Best Describes the Benefits to the Borrower