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 future cash flows for current cash flows.
C) The asset-backed security is likely to carry a high credit rating of AA or better.
D) The borrower trades future cash flows for current cash flows and the asset-backed security is likely to carry a high credit rating of AA or better.

Question

Quizplus · Accepted Answer

Selling asset-backed securities allows the borrower to trade future cash flows for current cash flows, which can be used to invest in other projects or pay off existing debts. Additionally, the asset-backed security is likely to carry a high credit rating of AA or better, which can lower the cost of borrowing in the future.

Which of the Following Best Describes the Benefits to the Borrower