The sale of asset-backed securities enables the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

Question

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Asset-backed securities are backed by assets such as mortgages, auto loans, or credit card receivables. By issuing these securities, the firm can sell the right to receive cash flows from these assets to investors in exchange for lower borrowing costs than a traditional bank loan or bond offering would provide. This is because the securities are often rated higher than the firm's own credit rating due to the underlying asset quality.

The Sale of Asset-Backed Securities Enables the Issuing Firm to Acquire