Question 1

The collateral in a securitization can be classified as either amortizing or nonamortizing assets.

Accepted Answer

A) True 
 B)False

Question 2

The collateral in a securitization can be classified as either amortizing or nonamortizing assets. Describe and contrast amortizing assets with nonamortizing assets.

Accepted Answer

Amortizing assets are loans in which the

Question 3

By making financial assets tradable in this way, securitization ________.

Accepted Answer

A)  increases agency costs, thereby making financial markets more efficient. 
B)  worsens liquidity for the underlying financial claims, thereby reducing liquidity risk in the financial system. 
C)  reduces agency costs, thereby making financial markets more efficient. 
D)  improves liquidity for the underlying financial claims, but increases the bankruptcy risk in the financial system. 
A)  increases agency costs, thereby making financial markets more efficient. 
B)  worsens liquidity for the underlying financial claims, thereby reducing liquidity risk in the financial system. 
C)  reduces agency costs, thereby making financial markets more efficient. 
D)  improves liquidity for the underlying financial claims, but increases the bankruptcy risk in the financial system.

Question 4

________ are loans in which the borrower's periodic payment consists of scheduled principal and interest payments over the life of the loan.

Accepted Answer

A)  Nonamortizing assets 
B)  Amortizing liabilities 
C)  Amortizing assets 
D)  Nonamortizing liabilities 
A)  Nonamortizing assets 
B)  Amortizing liabilities 
C)  Amortizing assets 
D)  Nonamortizing liabilities

Question 5

Because there are several third parties involved in a securitization (e.g., bond insurer, servicer, a trustee, issuer's counsel) and they all play an important role, the rating agency will investigate all of them to determine their ability to perform.

Accepted Answer

A) True 
 B)False

Question 6

Name three of the four principal reasons as to why a corporation may elect to raise funds via a securitization rather than a corporate bond.

Accepted Answer

The four principal reasons as to why a c

Question 7

The SPV is the issuer of the ABS.

Accepted Answer

A) True 
 B)False

Question 8

A credit card receivable is a nonamortizing asset and therefore has a revolving structure. In regards to the lockout period, which of the below statements is FALSE?

Accepted Answer

A)  During the lockout period the principal payments made by credit card borrowers comprising the pool are retained by the trustee and reinvested in additional receivables to maintain the size of the pool. 
B)  The lockout period can vary from 18 months to 10 years. 
C)  During the lockout period, the cash flow that is paid out to the bond classes is based on finance charges collected and fees. 
D)  The lockout period is followed by the principal amortization period, when the interest is no longer reinvested but paid to bondholders. 
A)  During the lockout period the principal payments made by credit card borrowers comprising the pool are retained by the trustee and reinvested in additional receivables to maintain the size of the pool. 
B)  The lockout period can vary from 18 months to 10 years. 
C)  During the lockout period, the cash flow that is paid out to the bond classes is based on finance charges collected and fees. 
D)  The lockout period is followed by the principal amortization period, when the interest is no longer reinvested but paid to bondholders.

Question 9

Which of the below statements is TRUE?

Accepted Answer

A)  The Small Business Association (SB
A)  is not an agency of the U.S. government empowered to guarantee loans made by approved SBA lenders to qualified borrowers. 
B)  Most SBA loans make monthly payments consisting only of interest payments. 
C)  Student loans are made to cover college costs (undergraduate, graduate, and professional programs such as medical and law school) and tuition for a wide range of vocational and trade schools. 
D)  The cash flow for senior citizen loans involve three periods with respect to the borrower's payments: deferment period, grace period, and loan repayment period. 
A)  The Small Business Association (SB
A)  is not an agency of the U.S. government empowered to guarantee loans made by approved SBA lenders to qualified borrowers. 
B)  Most SBA loans make monthly payments consisting only of interest payments. 
C)  Student loans are made to cover college costs (undergraduate, graduate, and professional programs such as medical and law school) and tuition for a wide range of vocational and trade schools. 
D)  The cash flow for senior citizen loans involve three periods with respect to the borrower's payments: deferment period, grace period, and loan repayment period.

Question 10

Few securitization transactions that employ internal credit enhancements follow a predetermined schedule that prioritizes the manner in which principal and interest generated by the underlying collateral must be used.

Accepted Answer

A) True 
 B)False

Question 11

The cash flow for auto loan-backed securities consists of regularly scheduled monthly loan payments (interest and scheduled principal repayments) and any prepayments.

Accepted Answer

A) True 
 B)False

Question 12

Uncommon forms of internal credit enhancement are senior/subordinate structures, overcollateralization, and reserve funds.

Accepted Answer

A) True 
 B)False

Question 13

A security created by pooling loans (other than residential prime mortgage loans) is referred to as ________.

Accepted Answer

A)  a residential-backed security (RBS). 
B)  a mortgaged-backed security (MBS). 
C)  an asset-backed security (ABS). 
D)  a prime mortgage-backed security (PMBS). 
A)  a residential-backed security (RBS). 
B)  a mortgaged-backed security (MBS). 
C)  an asset-backed security (ABS). 
D)  a prime mortgage-backed security (PMBS).

Question 14

When nonamortizing assets are securitized, there is a lockout period or revolving period where all principal received is used to sell old collateral.

Accepted Answer

A) True 
 B)False

Question 15

The Small Business Association (SBA) is an agency of the U.S. government empowered to guarantee loans made by approved SBA lenders to qualified borrowers. Describe the nature of these loans.

Accepted Answer

SBA loans are backed by the full faith a

Question 16

When unamortizing assets are securitized, the composition of the collateral is fixed over the life of the structure, all principal received by the trust is paid out to the bond classes and the securitization is said to be a self-liquidating structure.

Accepted Answer

A) True 
 B)False

Question 17

The competitive transition charge (CTC) is effectively a legislated asset and is the result of the movement to make the electric utility industry more competitive by deregulating the industry. In regards to CTC, which of the below statements is FALSE?

Accepted Answer

A)  The CTC is collected by the utility over an unknown period of time. 
B)  Because the state legislature designates the CTC to be a statutory property right, it can be sold by a utility to an SPV and then securitized. 
C)  It is the legislative designation of the CTC as an asset that makes rate reduction bonds different from the typical asset securitized. 
D)  The CTC is initially calculated based on projections of utility usage and the ability to collect revenues. 
A)  The CTC is collected by the utility over an unknown period of time. 
B)  Because the state legislature designates the CTC to be a statutory property right, it can be sold by a utility to an SPV and then securitized. 
C)  It is the legislative designation of the CTC as an asset that makes rate reduction bonds different from the typical asset securitized. 
D)  The CTC is initially calculated based on projections of utility usage and the ability to collect revenues.

Question 18

In the creation of an ABS, which of the below statements is FALSE?

Accepted Answer

A)  There is a type of securitization transaction involving a conduit that buys the loans and securitizes them. 
B)  The originator of the loan is the seller of the loan. 
C)  The originator of the loan is always the issuer of the loan. 
D)  The SPV in a securitization is referred to as the "issuer" or "trust" in the prospectus. 
A)  There is a type of securitization transaction involving a conduit that buys the loans and securitizes them. 
B)  The originator of the loan is the seller of the loan. 
C)  The originator of the loan is always the issuer of the loan. 
D)  The SPV in a securitization is referred to as the "issuer" or "trust" in the prospectus.

Question 19

Two of the five of largest sectors within the ABS market that are NOT backed by real estate mortgage loans include: ________.

Accepted Answer

A)  rate reduction stocks and student loan-backed securities. 
B)  large business administration loan-backed securities and credit card receivable-backed securities . 
C)  rate reduction bonds and senior citizen loan-backed securities. 
D)  credit card receivable-backed securities and auto loan-backed securities. 
A)  rate reduction stocks and student loan-backed securities. 
B)  large business administration loan-backed securities and credit card receivable-backed securities . 
C)  rate reduction bonds and senior citizen loan-backed securities. 
D)  credit card receivable-backed securities and auto loan-backed securities.

Exam 25: Market for Asset-Backed Securities

The collateral in a securitization can be classified as either amortizing or nonamortizing assets.

The collateral in a securitization can be classified as either amortizing or nonamortizing assets. Describe and contrast amortizing assets with nonamortizing assets.

By making financial assets tradable in this way, securitization ________.

________ are loans in which the borrower's periodic payment consists of scheduled principal and interest payments over the life of the loan.

Because there are several third parties involved in a securitization (e.g., bond insurer, servicer, a trustee, issuer's counsel) and they all play an important role, the rating agency will investigate all of them to determine their ability to perform.

Name three of the four principal reasons as to why a corporation may elect to raise funds via a securitization rather than a corporate bond.

The SPV is the issuer of the ABS.

A credit card receivable is a nonamortizing asset and therefore has a revolving structure. In regards to the lockout period, which of the below statements is FALSE?

Which of the below statements is TRUE?

Few securitization transactions that employ internal credit enhancements follow a predetermined schedule that prioritizes the manner in which principal and interest generated by the underlying collateral must be used.

The cash flow for auto loan-backed securities consists of regularly scheduled monthly loan payments (interest and scheduled principal repayments) and any prepayments.

Uncommon forms of internal credit enhancement are senior/subordinate structures, overcollateralization, and reserve funds.

A security created by pooling loans (other than residential prime mortgage loans) is referred to as ________.

When nonamortizing assets are securitized, there is a lockout period or revolving period where all principal received is used to sell old collateral.

The Small Business Association (SBA) is an agency of the U.S. government empowered to guarantee loans made by approved SBA lenders to qualified borrowers. Describe the nature of these loans.

When unamortizing assets are securitized, the composition of the collateral is fixed over the life of the structure, all principal received by the trust is paid out to the bond classes and the securitization is said to be a self-liquidating structure.

The competitive transition charge (CTC) is effectively a legislated asset and is the result of the movement to make the electric utility industry more competitive by deregulating the industry. In regards to CTC, which of the below statements is FALSE?

In the creation of an ABS, which of the below statements is FALSE?

Two of the five of largest sectors within the ABS market that are NOT backed by real estate mortgage loans include: ________.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters