Question

The type of arrangement wherein a special purpose entity is created for the purpose of purchasing pools of receivables is called?

1) Securitization
2) Factoring
3) Leasing
4) Mortgage

Answer 1

The correct answer is option 1) Securitization.

Step-by-step explanation:

The type of arrangement wherein a special purpose entity is created for the purpose of purchasing pools of receivables is called securitization.

Securitization is a financial process where loans or assets, such as mortgages, credit card debts, or car loans, are pooled together and transformed into tradable financial securities. These securities are then sold to investors, providing a new source of funding for the originator of the loans.

For example, a bank may sell its mortgage loans to a special purpose entity (SPE), which then packages these loans into mortgage-backed securities (MBS) and sells them to investors.