Asset-Backed Securities (ABS) are financial securities backed by income-producing assets such as credit card receivables, home equity loans, student loans, and auto loans.
ABSs are created when a company sells its loans or other debts to an issuer, a financial institution, which then packages them into a portfolio for sale to investors.
The pooling of assets in the ABS is a process called securitization.
ABSs are attractive to income-oriented investors because they pay constant interest income, like bonds.
Mortgage-backed securities and collateralized debt can be considered types of ABS.
Forward interest rate agreements (FRAs) are over-the-counter contracts between parties that specify an interest rate to be paid on an agreed date in the future.
A holding company depositary receipt (HOLDR) was a diversified investment product offered by Merrill Lynch that gave investors access to multiple shares in a particular industry or sector through a single holding.
Interest rate swaps are forward contracts in which one stream of future interest payments is exchanged for another based on a specified principal amount.
Risk acceptance or risk containment is a conscious strategy of recognizing the possibility of small or rare risks without taking measures to hedge, hedge or avoid these risks.
Arbitrageurs are investors who exploit market inefficiencies of any kind. They are necessary to ensure that inefficiencies between markets are smoothed out or kept to a minimum.
Audit risk is the risk that the financial statements will be materially incorrect, even if the auditor’s report indicates that the financial statements do not contain any material misstatement.
A beneficial owner is a person who enjoys the benefits of ownership, despite the fact that the ownership of the property is registered in a different name.