What is securitization in the financial system?
A. Turning loans into marketable financial products
B. Giving banks unlimited loans
C. Printing new money by the government
D. Regulating how banks secure their buildings
Answer (1)
The correct answer is letter A. Turning loans into marketable financial productsSecuritization means combining many loans, such as home loans, into a package and turning them into a product (like a bond) that can be sold to investors. It’s like a bundle of debts being wrapped into a new investment. This was a big part of the 2008 financial crisis because banks kept giving out risky loans and then sold them off through securitization. Investors didn't realize how risky these products were. In Asia, especially in Hong Kong and Singapore, securitization is also used, though with tighter rules to prevent the same mistakes.
