Question

Which of the following is not true. The process of securitization:

		makes assets more liquid.
		reduces default risk.
		provides fee income.
		all of the above are true.

Answer 1

Answer = all of the above are true

Note: assets more liquid

1. The process of securitization makes  assets more liquid because all the mortgages are pooled together and securities are issued which are backed by this pool of mortgage and these securities trade on the security market. This in turn increases the liquidity.

2. The process of securitization reduces default risk as the entire credit risk of the bank is lowered.

3. The process of securitization provides fee income because these mortgages are pooled together and securities are issued which brings in more fees income.