Question

Why would you expect securitization to take place only in highly developed capital markets?

Short answer

To attract the potential investors

Step-by-step solution

Definition

Securitization is the process in which large quantities of assets are bought from originators and bundled into pools that could be traded like any other financial asset.

Explanation

Securitization usually takes place only in a highly developed capital markets because it needs to attract the potential investors who would usually want:

• a safe business environment
• business friendly laws
• rationalized taxation/regulation regime
• developed system of brokerage and financial transaction
• developed investment banking systems
• developed financial reporting

All the traits mentioned above are found only in a highly developed capital market.