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Questions: 1.Critically explain what is asset securization. 2.How these securization benefits the investor? 3.Also need to know what are the risk in investing securization. 4.Need to know the financial crisis related back to asset back securization. Answers: 1.Asset securitization is the process where the loans and receivables are underwritten and sold as asset backed securities. Asset securitisation is basically pooling the asset and then creating a more or less instrument for investment like mortgage pass-through security. This also called as the replacement of the non-marketable loans and the cash flows which are issued in the capital markets with negotiable securities. Asset securitisation is an arrangement which is comprised of putting together a claim on a particular asset which is then sold in the financial market as negotiable security. Asset securitisation is mainly done by financial institutions of commercial papers, car loans, mortgages, credit card receivables and export credits (Obay, 2014). 2.The major benefits of the securitisation to the investors is that with the rating given by the credit rating agencies the investors will get a surety that they will not lose their money with these investments. The benefits of securitisation to investors: Securitisation is a structured finance instrument that is more closely assigned to investors needs. The investor will get a cover by investing into these securities as the default cases are very low. The recovery rate of defaulted tranches is very high then the rate of corporate bonds. Investors can freely invest in the instruments which suits their investment policy as best ones. All the more the experience shared by the investors on international level is quite good with very low cases of default (Gatti, 2013). 3.Risk involved in investing in securitisation: Credit/ Default: This is the risk in which the borrower is unable to pay the interest obligations on time. There is default of payment at the end of the borrower of the instrument. Reinvestment/ Prepayment/ Early amortisation: There are majority of asset backed securities which are exposed to the risk of early amortisation. Currency interest rate fluctuations: The prices of fixed interest rate securities also move like all other fixed income with the changes in interest rates. Interest rate changes also affect the prepayment rates of the loans which are underlying that are backed by the asset backed securities. Servicer risk: The collection of payment or transfer of payment that may be reduced or delayed if the servicer himself becomes insolvent. This risk can be mitigated by always having a backup servicer in the transaction (Hu, 2011). 4.The financial crises related back to asset back securitisation are: There can be failures in the financial regulations There can be dramatic breakdowns as there is too much risk involved in asset backed securitisation. The fall and increase in the prices also affect the asset backed securities typically related to the tangible assets (Brigham and Ehrhardt, 2013). References: Obay, L., 2014.Financial innovation in the banking industry: the case of asset securitization. Routledge. Hu, J.C., 2011.Asset securitization: theory and practice(Vol. 679). John Wiley Sons. Brigham, E.F. and Ehrhardt, M.C., 2013.Financial management: Theory practice. Cengage Learning. Gatti, S., 2013.Project finance in theory and practice: designing, structuring, and financing private and public projects. Academic Press.