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) b and c are correct.

Question

Quizplus · Accepted Answer

Selling asset-backed securities allows the borrower to trade future cash flows for current cash flows, which can be advantageous for their cash flow management. Additionally, because the securities are backed by assets, they are likely to carry a high credit rating, which can help the borrower access funding at a lower cost. By selling these securities, the borrower can also diversify their funding sources and reduce their overall funding costs.

Which of the Following Best Describes the Benefits to the Borrower