Correct Answer: Converting assets into tradable securities

Solution : The correct answer is (b) Converting assets into tradable securities.

The process of securitization involves converting assets, such as loans, mortgages, or other receivables, into tradable securities. It allows financial institutions to package and sell these assets to investors in the form of securities, typically in the form of asset-backed securities (ABS) or mortgage-backed securities (MBS). Securitization involves several steps. First, a financial institution pools together a group of similar assets, such as a collection of mortgages or auto loans. These assets are then transferred to a special purpose vehicle (SPV), which is a separate legal entity created specifically for the securitization transaction.

Securitization allows financial institutions to reduce risk exposure, free up capital, and access new sources of funding. It enables the transformation of illiquid assets into tradable securities, making them more attractive to investors.