What does the process of securitization involve?

The process of securitization specifically involves converting illiquid assets into marketable securities. This involves pooling together various types of assets, such as mortgages, loans, or other receivables, and then creating securities that represent a claim on the cash flows generated by those assets. These newly created securities can then be sold to investors, providing liquidity to the originators of the assets and allowing them to free up capital for further lending or investment activities.

Securitization serves multiple purposes, including risk diversification and the ability for originators to access funding at potentially lower costs. By transforming non-tradable assets into tradable securities, this process enhances marketability and can lead to better pricing and risk management for investors.

Other options, while related to finance, do not capture the essence of securitization. Buying and holding securities pertains to investment strategies, analyzing liquidity is about market conditions and cash availability, and negotiating trade deals revolves around the execution of trades rather than the creation of securities from underlying assets.