Asset-Backed Securities

An asset-backed security (ABS) is a bond created by a pool of financial assets such as credit card payments, trade receivables and a variety of homogenous loans. The utility of an asset-backed security is that it enables holders of illiquid assets to convert them into marketable securities. An asset-backed security is synthesized in a process called securitization, wherein the pool of investments is sold off to an investment vehicle, which, in turn, issues the asset-backed security representing those obligations in the form of a bond. It enables the issuer to transfer any risk inherent to the underlying pool of funds to investors who buy such security.

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