Special purpose vehicle and its role in structured finance

Question

Accepted Answer

Special purpose vehicles (SPVs) are entities created to isolate financial risk and facilitate complex financial transactions.

SPVs are commonly used in structured finance to securitize assets such as mortgages, auto loans, and credit card debt.
They are designed to protect investors by separating the assets and liabilities of the SPV from those of the parent company.
SPVs can issue bonds or other securities backed by the assets they hold, allowing investors to invest in a diversified pool of assets.
They can also be used to transfer risk, such as in the case of credit default swaps.
SPVs are often located in offshore tax havens to take advantage of favorable tax laws and regulatory environments.

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