Financial accounting is an important part of SAP FICO
The role of securitization has been studied and the studies have led to conclusions regarding emerging markets. Asset Securitization is a part of financial accounting in SAP FICO. Asset Securitization can be rated as a popular factor among the issuers because of its low constraint capacity and free fund access. It has reduced the borrowing costs and the owners have largely benefited by valuation based on the market cost of the assets, credit rating has enhanced, asset liability management has improved, cash flows easily match the investor payment till the time of redemption, strategic management of the portfolios, increase in the market competition and new end products have been made available to the customers.
The availability of a good securitization system helps in the mitigation of the disparities in the available cost of credit in various domains of capital markets. “Securitization helps financial institutions to meet credit demands through the creation of new financial products that dis aggregate, customize, repackage and distribute asset risk if suitable hedging instruments are absent”(Jobst, 2006). Securitization can improvise the market through the new addition of various finance companies that specialize in securitizing assets to break the old existing markets which are based on traditional money exchange. The paper also reviews the vital role of securitization.
Securitization fulfills the income of domestic markets where straight bonds cannot be issued by financial institutions. This leads to optimization of the capital cost of those institutions because of the lack of credit outstanding and this forces the domestic investor to abide by the government for the alternative investment. The originator of debt which is securitized in emerging capital market nations can increase the funds at a capital cost that was above their rating of credit to the securitization ability to detachment of asset risk from the originator. Apart from the competition of asset price, diversity of asset class, and investor base that is efficient, certain criteria are used for asset securitization like
(i) market structure not being perfect due to high costs in borrowing and constraints that are fiscal
(ii) a regulatory structural, legal, adequate, and bankable facilities to detect bankruptcy and governance issues
(iii)use of transaction that has a transparent structure to ensure and establish unimpeded control over assets that are securitized to the strategic evaluation and monitoring of trustees, agencies, and guarantors.
This leads to the establishment of a financial institution that is transparent, effective, and efficient in its financial matters. Due to rules regarding capital adequacy and risks certain banks or financial institutions are not able to provide the required credit Securitization helps to increase the levels by adding new insurance companies, using mutual funds or synthetic risk transfer systems. It encourages investors through the sale of balance sheet assets or other transfer procedures. Due to the emerging reforms in tax, legal base, and regulatory aspects, the securitization process has helped in strengthening the investor base that is growing and developing. This growth is attributed to the provision of finance through new pension schemes and insurance funds and bonds to match the current liabilities with the highly valuable long-term perspective and local bond investments involving currencies. Hence it improves the diversification of risk in the financial sector.
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