Which of the Following Best Describes the Benefits to the Borrower

question 21

Multiple Choice

Which of the following best describes the benefits to the borrower of selling asset-backed securities?

• A) Due to the portfolio effect, the borrower can package up low-quality accounts receivable and sell them for a premium price.
• B) The borrower trades future cash flows for current cash flows.
• C) The asset-backed security is likely to carry a high credit rating of AA or better.
• D) The borrower trades future cash flows for current cash flows and the asset-backed security is likely to carry a high credit rating of AA or better.

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Definitions:

Debt Financing

A method of raising capital through the borrowing of money, which needs to be repaid at a later date, often with interest.

Lessee

An individual or entity that leases or rents property from a lessor.

Leasing Cash Flows

The cash inflows and outflows associated with leasing operations, including initial receipts, ongoing lease payments, and final residuals.

Operating Leases

Lease agreements for the use of equipment or property for a shorter period compared to the asset's useful life, where lessor retains ownership.