Either Tokenization to some extent resembles the process of Securitization. Explain the term "Tokenization" and also illustrate the similarities…

Tokenization is a process of converting tangible and intangible assets into blockchain tokens. Digitally representing anything has recently acquired a lot of traction. It can be effective in conventional industries like real estate, artwork etc. Tokenization and Securitization Since tokenization of illiquid assets attempts to convert illiquid assets into a product that is liquid and tradable and hence to some extent it resembles the process of Securitization. Hence, following are some similarities between Tokenization and Securitization: (i) Liquidity: - First and foremost both Securitization and Tokenization inject liquidity in the market for the assets which are otherwise illiquid assets. (ii) Diversification: - Both help investors to diversify their portfolio thus managing risk and optimizing returns. (iii) Trading: - Both are tradable hence helps to generate wealth. (iv) New Opportunities: - Both provide opportunities for financial institutions and related agencies to earn income through collection of fees. OR The main types of risk associated with investment in CDOs are as follows: (i) Default Risk: - Also called 'credit risk', it emanates from the default of underlying party to the instruments. The prime sufferers of these types of risks are equity or junior tranche in the waterfall. (ii) Interest Rate Risk: - Also called Basis risk and mainly arises due to different basis of interest rates. For example, asset may be based on floating interest rate but the liability may be based on fixed interest rates. Though this type of risk is quite difficult to manage fully but commonly used techniques such as swaps, caps, floors, collars etc. can be used to mitigate the interest rate risk. (iii) Liquidity Risk: - Another major type of risk by which CDOs are affected is liquidity risks as there may be mismatch in coupon receipts and payments. (iv) Prepayment Risk: - This risk results from unscheduled or unexpected repayment of principal amount underlying the security. Generally, this risk arises in case assets are subject to fixed rate of interest and the debtors have a call option. Since, in case of falling interest rates they may pay back the money. (v) Reinvestment Risk: - This risk is generic in nature as the CDO manager may not find adequate opportunity to reinvest the proceeds when allowed for substitutions. (vi) Foreign Exchange Risk: - Sometimes CDOs are comprised of debts and loans from countries other than the country of issue. In such a case, in addition to above mentioned risks, CDOs are also subject to the foreign exchange rate risk.