Exam 9: Risk Management: Asset-Backed Securities, Loan Sales, Credit Standbys, and Credit Derivatives

A(n)_________________________ guarantees the swap parties a specific rate of return on their credit assets.Bank A may agree to pay the total return on the loan to Bank B plus any appreciation in the market value of the loan.In return Bank A will often get LIBOR plus a fixed spread plus any depreciation in the value of the loan.

A securitized asset where the asset used to back the securities is a loan based on the residual value of a homeowner's residence is called:

A(n)_________________________ combines a normal debt instrument with a credit option.It allows the issuer of the debt instrument to lower its loan repayments if some significant factor changes.

Short-dated pieces of a longer-term loan,usually maturing in a few days or weeks,are called:

Which of the following is true regarding regulatory rules for standby credit letters issued by banks?

Securitized assets,as a source of bank funds,are subject to reserve requirements set by the Federal Reserve Board.

Which of the following developed a new mortgage-backed instrument-the collateralized mortgage obligation (CMO)-in which investors were offered different classes of mortgage-backed securities with different expected payout schedules?

Securitization is designed to turn illiquid loans into liquid assets in the form of securities sold in the open market.

The buyer of a participation loan must watch both the borrower and the seller bank closely.

According to the textbook,what is the minimum size of the loan-backed securities offerings that are likely to be successful?

In some instances,banks sell loans and agree to give the loan purchaser recourse to the seller for all or a portion of those loans that become delinquent.In this case,the purchaser,in effect,gets a:

Investors in securitized loans normally receive added assurance that they will be repaid in the form of guarantees against default issued by:

A bank plans to offer new subordinated notes in the open market next month but knows that its credit rating is being reviewed by a credit rating agency.The bank wants to avoid paying sharply higher credit costs.Which type of credit derivative contract would you most recommend for this situation?

Securitizations of commercial loans usually carry the same regulatory capital requirements for a bank as the original loans themselves.

Banks are the principal sellers of credit derivatives.

According to research,off-balance-sheet standby credit letters reduce risk by:

In a participation loan,the purchaser is an outsider to the loan contract between the financial institution selling the loan and the borrower.

The customer that is requesting a standby letter of credit is known as the __________.

Often when loans are securitized,they are passed on to a(n)________________ which pools the loans and sells securities.

Credit ratings for loan-backed bonds are often: