SOLUTION: Saudi Electronic University Accounting Discussion Questions

Attached. Please let me know if you have any questions or need revisions.Running head: QUESTIONS1Accounting AssignmentNameInstitutionDateQUESTIONS2Question 1The concept of securitization is quite broad. It is a new concept because it can be tracedback to the 18th century. Ideally, securitization entails the conversion of debts into securities;these securities are after that acquired and sold in a financial market. Debts are often assets forlenders but liabilities to the borrower (Gorton & Metrick, 2013). The concept of securitizationis a lengthy and complex process where receivables are converted into bonds. Besides, theprocess of securitization often involves various parties. Some various processes and types makeup the concept of securitization. The first type is the Asset-Backed Securities (ABS); theunderlying financial asset facilitates these bonds. Receivables like student and auto loans aretransformed into ABS.Secondly, the Residential Mortgage-Backed Securities (MBS) are bonds made up ofdifferent mortgages like house, land, or property, jewelry, among other valuables. Thirdly, theCommercial Mortgage-Backed Securities (CMBS) bonds are formed by tying variouscommercial asset mortgages like a factory or industrial land (Gorton & Metrick, 2013).Fourthly, Collateralized Debt Obligations (CDO) are bonds made by re-bundling personaldebts so that the same can be marketed in secondary markets for various investors. Finally, theFuture Flow Securitization and a business give these elements over a debt receivable for afuture period.In the process of securitization, the parties involved benefit in various ways. Thisprocess reduces funding costs. It also makes it easy for investors to securities that match theirreturns, risks, and maturity needs. Banks benefit and improve profitability from securitizationwhen they increase loan fees and origination (Gorton & Metrick, 2013). Through securitization,tradable securities are created, and they make the financial markets more efficient because ofhigh liquidity.QUESTIONS3Question 2The financial statements of financial institutions like banks differ from those of nonfinancial institutions. For financial institutions, the financial statements portray a differentanalytical issue than financial statements for service or manufacturing businesses. Thus, theanalysis of a bank’s financial statement requires a distinct approach that recognizes the bank’sunique risks. In banks, the financial intermediaries assume the interest rate and credit risks tomanage the flow of finances through their businesses (Palepu et al., 2020). The balance sheetsof a bank are unique because of the sources of the bank’s liabilities and the uses to which thesources are assets. Therefore, banks invest the liabilities to generate assets to create value forthe capital providers.While the income statements, balance sheets, and other financial reports of banks areunique, the financial statements of non-financial institutions have come quite close to what isseen on the bank’s financial statements (Palepu et al., 2020). Although the non-financialinstitution’s balance sheets have loans, they are not dominated by loans like is the case incommercial banks. The balance sheet reveals or reports the value of the held assets andstockholders’ or capital equity. The balance sheets’ asset is often broken-down investmentsecurities, miscellaneous assets, assets, and loans.Also, in banks, the assets’ value is recorded on balance sheets is often measured a singlemoment at a time. However, the revue sources of a commercial bank are not closely related tonon-financial institutions (Palepu et al., 2020). Conversely, the financial statements of nonfinancial organizations utilize financial leverage to finance most of their operations. The bank’sfinancial statement is unique because it is dominated by loans, deposits, trading assets andliabilities, property, and equity. The financial statement of a non-bank is dominated by equity,QUESTIONS4non-current assets, working capital, and net debt. Notably, there isn’t too much difference in abank’s financial structure than those of non-financial or thrift businesses.Question 3A market risk entails the possibility of an investor incurring losses because of thefactors that impact the financial market’s entire performance in which the investor is involved.Also termed as systematic risk, market risks usually cannot be done away with diversification;however, the same market risk can be hedged against differently. Notably, there are manymarket risk sources, including political turmoil, recessions, terror attacks, natural disasters, andshifts in interest risks (Scannella, 2018). It is …

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