What is Structured Finance?
Structured finance refers to a complex financial arrangement that involves the pooling of various financial assets or obligations into a single entity, which is then used to create new financial instruments. The goal of structured finance is to provide customized financing solutions to meet specific needs, manage risk, and optimize cash flows. In structured finance, assets with predictable cash flows, such as mortgages, loans, leases, or receivables, are bundled together and transformed into securities or investment products. These products are then sold to investors in the form of asset-backed securities (ABS), collateralized debt obligations (CDOs), or other structured financial instruments. The process of structured finance typically involves the following steps: Asset Selection: High-quality assets or financial obligations with predictable cash flows are identified for inclusion in the structured finance transaction. These assets can be of various types, such as residential or...