Question 1

Advantages of loan sales and securitization typically include all but which one of the following?

Accepted Answer

A) Reduction in credit risk 
B) Reduction in interest rate risk 
C) Increase in liquidity of the balance sheet 
D) Reduction in regulatory tax burden 
E) Increase in net interest income 
A) Reduction in credit risk 
B) Reduction in interest rate risk 
C) Increase in liquidity of the balance sheet 
D) Reduction in regulatory tax burden 
E) Increase in net interest income

Question 2

You own a mortgage-backed security and you will receive fixed semiannual interest payments and no principal payments as long as prepayments remain within a given range. If prepayments move outside the range,you will receive prepayments. You must be holding a ______________________.

Accepted Answer

A) class C or lower sequential pay CMO 
B) PAC CMO 
C) PO security 
D) pass-through security 
E) CDO 
A) class C or lower sequential pay CMO 
B) PAC CMO 
C) PO security 
D) pass-through security 
E) CDO

Question 3

A loan that finances a merger or acquisition that results in a high-leverage ratio for the borrower is called a

Accepted Answer

A) correspondent loan. 
B) CMO. 
C) HLT loan. 
D) low-recourse loan. 
E) distressed loan. 
A) correspondent loan. 
B) CMO. 
C) HLT loan. 
D) low-recourse loan. 
E) distressed loan.

Question 4

Why has securitization progressed most rapidly for home mortgages?

Accepted Answer

Home mortgages have standard maturities

Question 5

The act of buying a share in a loan syndication with limited contractual control and rights over the borrower is called a

Accepted Answer

A) correspondent loan. 
B) loan assignment. 
C) HLT loan. 
D) loan participation. 
E) distressed loan. 
A) correspondent loan. 
B) loan assignment. 
C) HLT loan. 
D) loan participation. 
E) distressed loan.

Question 6

A mortgage pass-through security is a bond issue backed by a group of mortgages that pays fixed semiannual coupon payments and the principal is repaid only at maturity.

Accepted Answer

A) True 
 B)False

Question 7

What loans,other than mortgages,are currently being securitized?

Accepted Answer

* Automobile loans
* Credit ca

Question 8

A four-class CMO has Class A,Class B,Class C,and the residual Class Z securities outstanding. Which class has the longest duration?

Accepted Answer

A) Class A 
B) Class B 
C) Class C 
D) Class Z 
E) All have the same duration 
A) Class A 
B) Class B 
C) Class C 
D) Class Z 
E) All have the same duration

Question 9

Vulture funds specialize in buying distressed loans.

Accepted Answer

A) True 
 B)False

Question 10

The sum of the market values of all the classes of a CMO is greater than the total value of the GNMA pass-throughs backing the CMO because

Accepted Answer

A) the CMO has less credit risk than the pass-through. 
B) CMO investors can choose their degree of prepayment protection. 
C) the government guarantees CMOs' performance. 
D) CMOs have a more favorable tax status than pass-throughs. 
E) CMO investors have no prepayment risk. 
A) the CMO has less credit risk than the pass-through. 
B) CMO investors can choose their degree of prepayment protection. 
C) the government guarantees CMOs' performance. 
D) CMOs have a more favorable tax status than pass-throughs. 
E) CMO investors have no prepayment risk.

Question 11

More than 90 percent of loan sales are via assignments.

Accepted Answer

A) True 
 B)False

Question 12

A three-class sequential pay CMO has an initial principal balance of $50 million per class. In the first month,interest payments of $5 million and principal payments of $2 million are received. In the second month,Class A holders receive interest on _____ principal and Class B holders receive interest on _____ principal.

Accepted Answer

A) $30 million; $30 million 
B) $28 million; $28 million 
C) $27 million; $27 million 
D) $28 million; $30 million 
E) $30 million; $28 million 
A) $30 million; $30 million 
B) $28 million; $28 million 
C) $27 million; $27 million 
D) $28 million; $30 million 
E) $30 million; $28 million

Question 13

The bank keeps a capital-to-asset ratio of 8 percent. If the bank does not securitize the mortgages,they will be fully funded with demand deposits that have a reserve requirement of 10 percent. The demand deposits also have a deposit insurance premium of 0.20 cents per $100 of deposits. If the bank securitizes the mortgages,how much less capital will the bank require?
 If the savings from not having the required reserves and the deposit insurance premiums could be invested at 5 percent,what is the dollar opportunity cost of not securitizing?

Accepted Answer

Capital requirement from the mortgages =

Question 14

A pass-through security is best characterized as

Accepted Answer

A) a multiclass mortgage-backed bond. 
B) a security with a pro rata claim to the underlying pool of assets. 
C) a bond backed by real estate. 
D) a part of a loan assignment. 
E) a part of a loan participation. 
A) a multiclass mortgage-backed bond. 
B) a security with a pro rata claim to the underlying pool of assets. 
C) a bond backed by real estate. 
D) a part of a loan assignment. 
E) a part of a loan participation.

Question 15

In a loan participation,which of the following is/are true?
I. The loan buyer has no part in the original underlying credit agreement,even after purchase of the loan.
II. If the selling bank fails,the loan buyer's claim against the selling bank may be treated as unsecured.
III. In the event the selling bank fails,the original borrower's deposits may be used to reduce the loan amount without any proceeds going to the loan buyer.

Accepted Answer

A) I only 
B) II only 
C) II and III only 
D) I and II only 
E) I,II,and III 
A) I only 
B) II only 
C) II and III only 
D) I and II only 
E) I,II,and III

Question 16

Banks were willing to swap LDC loans for Brady bonds because:

Accepted Answer

A) Brady bonds carried higher interest rates than the loans. 
B) the bonds had variable interest rates. 
C) the bonds were marketable and the loans were not. 
D) the bonds were uncollateralized. 
E) none of the options presented. 
A) Brady bonds carried higher interest rates than the loans. 
B) the bonds had variable interest rates. 
C) the bonds were marketable and the loans were not. 
D) the bonds were uncollateralized. 
E) none of the options presented.

Question 17

If a mortgage pass-through experiences smaller prepayments than expected early on in the life of the security,the result will be that pass-through holders will receive _______ than expected cash flows early on and _______ than expected cash flows later on.

Accepted Answer

A) greater; less 
B) greater; greater 
C) less; greater 
D) less; less 
E) less; no different 
A) greater; less 
B) greater; greater 
C) less; greater 
D) less; less 
E) less; no different

Advantages of loan sales and securitization typically include all but which one of the following?

You own a mortgage-backed security and you will receive fixed semiannual interest payments and no principal payments as long as prepayments remain within a given range. If prepayments move outside the range,you will receive prepayments. You must be holding a ______________________.

A loan that finances a merger or acquisition that results in a high-leverage ratio for the borrower is called a

Why has securitization progressed most rapidly for home mortgages?

The act of buying a share in a loan syndication with limited contractual control and rights over the borrower is called a

A mortgage pass-through security is a bond issue backed by a group of mortgages that pays fixed semiannual coupon payments and the principal is repaid only at maturity.

What loans,other than mortgages,are currently being securitized?

A four-class CMO has Class A,Class B,Class C,and the residual Class Z securities outstanding. Which class has the longest duration?

Vulture funds specialize in buying distressed loans.

The sum of the market values of all the classes of a CMO is greater than the total value of the GNMA pass-throughs backing the CMO because

More than 90 percent of loan sales are via assignments.

A pass-through security is best characterized as

Banks were willing to swap LDC loans for Brady bonds because:

If a mortgage pass-through experiences smaller prepayments than expected early on in the life of the security,the result will be that pass-through holders will receive _ than expected cash flows early on and _ than expected cash flows later on.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Filters

Exam 24: Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Advantages of loan sales and securitization typically include all but which one of the following?

You own a mortgage-backed security and you will receive fixed semiannual interest payments and no principal payments as long as prepayments remain within a given range. If prepayments move outside the range,you will receive prepayments. You must be holding a ______________________.

A loan that finances a merger or acquisition that results in a high-leverage ratio for the borrower is called a

Why has securitization progressed most rapidly for home mortgages?

The act of buying a share in a loan syndication with limited contractual control and rights over the borrower is called a

A mortgage pass-through security is a bond issue backed by a group of mortgages that pays fixed semiannual coupon payments and the principal is repaid only at maturity.

What loans,other than mortgages,are currently being securitized?

A four-class CMO has Class A,Class B,Class C,and the residual Class Z securities outstanding. Which class has the longest duration?

Vulture funds specialize in buying distressed loans.

The sum of the market values of all the classes of a CMO is greater than the total value of the GNMA pass-throughs backing the CMO because

More than 90 percent of loan sales are via assignments.

A pass-through security is best characterized as

Banks were willing to swap LDC loans for Brady bonds because:

If a mortgage pass-through experiences smaller prepayments than expected early on in the life of the security,the result will be that pass-through holders will receive _______ than expected cash flows early on and _______ than expected cash flows later on.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Filters

If a mortgage pass-through experiences smaller prepayments than expected early on in the life of the security,the result will be that pass-through holders will receive _ than expected cash flows early on and _ than expected cash flows later on.