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The Investment Assets Handbook: A definitive practical guide to asset classes by Yoram Lustig

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Chapter 11: Structured finance

Structured finance relates to securitisation of cash flows from underlying pools of usually illiquid financial instruments (e.g. mortgages, loans and credit card receivables) into liquid, transferable financial securities.

These securities are essentially fixed income, since they promise to pay interest to their investors. However, unlike government and corporate debt, which is used to finance its issuers through borrowing, structured finance securities repackage existing financial instruments and sell them. They are not used to raise debt by their issuer and they exhibit different return and risk behaviour compared to other, more traditional fixed income securities.

For example, a bank lends money to buyers ...

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