A Special Investment Vehicle, or SIV, is a collection of investments that earns profit on the difference in price (spreads) between structured financial products (CDOs, MBS's etc.) and short-term debt.
For example, a SIV may borrow money in the wholesale market at 2% and then invest it in structured products for a return of 5% and earn a profit of 3%. SIVs are usually highly leveraged to magnify returns and borrow on a very short-term basis and as a result, are very exposed to liquidity in the money markets.
- Collateralized Debt Obligation (CDO)
- Mortgage Backed Security (MBS)
- Money Market
- Special Purpose Vehicle (SPV)