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    Structured Financial Instrument

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    VirajRaut
    Structured finance provides complex financing options for companies with specialized needs that cannot be met through conventional loans or financial products. It involves multiple, customized transactions and the creation of sophisticated financial instruments that are often risky. Examples of structured finance instruments include collateralized debt obligations, collateralized bond obligations, and syndicated loans.

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    Structured Financial Instrument

    Uploaded by

    VirajRaut
    39 views2 pages
    Structured finance provides complex financing options for companies with specialized needs that cannot be met through conventional loans or financial products. It involves multiple, customized transactions and the creation of sophisticated financial instruments that are often risky. Examples of structured finance instruments include collateralized debt obligations, collateralized bond obligations, and syndicated loans.

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    Structured financial Instrument

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    Structured finance provides complex financing options for companies with specialized needs that cannot be met through conventional loans or financial products. It involves multiple, customized transactions and the creation of sophisticated financial instruments that are often risky. Examples of structured finance instruments include collateralized debt obligations, collateralized bond obligations, and syndicated loans.

    Copyright:

    © All Rights Reserved
    Download as TXT, PDF, TXT or read online from Scribd
    Download as txt, pdf, or txt
    39 views2 pages

    Structured Financial Instrument

    Uploaded by

    VirajRaut
    Structured finance provides complex financing options for companies with specialized needs that cannot be met through conventional loans or financial products. It involves multiple, customized transactions and the creation of sophisticated financial instruments that are often risky. Examples of structured finance instruments include collateralized debt obligations, collateralized bond obligations, and syndicated loans.

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    © All Rights Reserved
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    What Is Structured Finance?

    Structured finance is a heavily involved financial instrument presented to large


    financial institutions or companies with complicated financing needs who are
    unsatisfied with conventional financial products. Since the mid-1980s, structured
    finance has become popular in the finance industry. Collateralized debt obligations
    (CDOs), synthetic financial instruments, collateralized bond obligations (CBOs),
    and syndicated loans are examples of structured finance instruments.

    KEY TAKEAWAYS
    Structured finance is a financial instrument available to companies with complex
    financing needs, which cannot be ordinarily solved with conventional financing.
    Traditional lenders do not generally offer structured financing.
    Structured financial products, such as collateralized debt obligations, are non-
    transferable.
    Structured finance is being used to manage risk and develop financial markets for
    complex emerging markets.
    1:24
    Structured Finance

    Understanding Structured Finance


    Structured finance is typically indicated for borrowers—mostly extensive
    corporations—who have highly specified needs that a simple loan or another
    conventional financial instrument will not satisfy. In most cases, structured
    finance involves one or several discretionary transactions to be completed; as a
    result, evolved and often risky instruments must be implemented.

    Benefits of Structured Finance


    Structured financial products are typically not offered by traditional lenders.
    Generally, because structured finance is required for major capital injection into
    a business or organization, investors are required to provide such financing.
    Structured financial products are almost always non-transferable, meaning that they
    cannot be shifted between various types of debt in the same way that a standard
    loan can.

    Increasingly, structured financing and securitization are used by corporations,


    governments, and financial intermediaries to manage risk, develop financial
    markets, expand business reach, and design new funding instruments for advancing,
    evolving, and complex emerging markets. For these entities, using structured
    financing transforms cash flows and reshapes the liquidity of financial portfolios,
    in part by transferring risk from sellers to buyers of the structured products.
    Structured finance mechanisms have also been used to help financial institutions
    remove specific assets from their balance sheets.

    Examples of Structured Finance Products


    When a standard loan is not enough to cover unique transactions dictated by a
    corporation's operational needs, a number of structured finance products may be
    implemented. Along with CDOs and CBOs, collateralized mortgage obligations (CMOs),
    credit default swaps (CDSs), and hybrid securities, combining elements of debt and
    equity securities, are often used.

    Securitization is the process through which a financial instrument is created by


    combining financial assets, commonly resulting in such instruments as CDOs, asset-
    backed securities, and credit-linked notes. Various tiers of these repackaged
    instruments are then sold to investors. Securitization, much like structured
    finance, promotes liquidity and is used to develop the structured financial
    products used by qualified businesses and other customers. There are many benefits
    of securitization, including being a less expensive source of funding and better
    use of capital.

    Mortgage-backed securities (MBS) a model example of securitization and its risk-


    transferring utility. Mortgages may be grouped into one large pool, leaving the
    issuer the opportunity to divide the pool into pieces that are based on the risk of
    default inherent to each mortgage. The smaller pieces may then be sold to
    investors.

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