Question 1

External credit enhancements come in more complicated forms than internal credit enhancements and may alter the cash flow characteristics of the loans even in the absence of default.

Accepted Answer

A) True 
 B)False  False

Question 2

Rate reduction bonds, also called stranded cost bonds or stranded asset bonds, are backed by a state-legislative approved special charge, referred to as the competitive transition charge, charged by pharmaceutical companies.

Accepted Answer

A) True 
 B)False  False

Question 3

Securitization has resulted in financial disintermediation.

Accepted Answer

A) True 
 B)False  True

Question 4

There are provisions in credit card receivable-backed securities that require ________ of the principal if certain events occur. When ________ occurs, the bond classes are retired sequentially by distributing the principal payments to the specified bond class instead of using those payments to acquire more receivables.

Accepted Answer

A)   early amortization; late amortization
B)   early amortization; early amortization
C)   late amortization; late amortization
D)   timely payoff; early payoff

Question 5

All loans must be serviced. What does servicing involve? What is the servicer responsible for?

Accepted Answer

The answer of All loans must be serviced. What does...

Question 6

Which of the below statements is FALSE?

Accepted Answer

A)   Securitization is a vehicle for raising funds directly in the public market without the need for a financial intermediary.
B)   Securitization reduces risk via diversification.
C)   The costs of contracting and information processing are provided in asset securitization.
D)   The concerns with the financial disintermediating impact of securitization are that more assets will be held in the portfolio of banks.

Question 7

There are three general categories of credit cards. Which of the below is NOT one of these categories?

Accepted Answer

A)   general-purpose credit cards
B)   independent networks
C)   public-label credit cards
D)   private-label credit cards

Question 8

What is the key benefit of securitization to financial markets?

Accepted Answer

The answer of What is the key benefit of securitization...

Question 9

Credit card payable-backed securities are backed by the cash flow of a pool of credit card receivables and the cash flow consists of finance charges collected, fees, and principal.

Accepted Answer

A) True 
 B)False

Question 10

Securitization allows for the creation of tradable securities with better liquidity making it feasible for investors to invest in residential mortgage loans, automobile loans, or credit card receivables. By making these financial assets tradable, what does securitization achieve? What concerns are created with the financial disintermediating impact of securitization?

Accepted Answer

The answer of Securitization allows for the creation of tradable...

Question 11

In assessing the risk on ABS, rating agencies ignore asset risks, structural risks, third parties to the structure, and the legal structure.

Accepted Answer

A) True 
 B)False

Question 12

If there are a few borrowers in the pool that are significant in size relative to the entire pool balance, this diversification benefit can be lost, resulting in a higher level of credit risk referred to as ________.

Accepted Answer

A)   focus risk.
B)   concentration risk.
C)   concentric risk.
D)   intensity risk.

Question 13

Student loan-backed securities are backed by federally guaranteed and private student loans and involve three periods with respect to the borrower's payments: deferment period, grace period, and loan repayment period.

Accepted Answer

A) True 
 B)False

Question 14

Securitization is a vehicle for raising funds directly in the public market without the need for a financial ________. That is, securitization is said to result in ________.

Accepted Answer

A)   liaison; accounting discrimination
B)   advisor; accounting disintermediation
C)   go-between; financial interpretation
D)   intermediary; financial disintermediation

Question 15

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

Accepted Answer

A)   An installment sale contract is a loan to the buyer of the assets wherein the buyer agrees to repay the originator of the loan over a specified period of time for the amount borrowed plus interest.
B)   The criteria for granting a loan are referred to as underwriting standards.
C)   The company is granting the loan is referred to as the originator of the loan.
D)   The buyers of the assets will set up a legal entity referred to as a special purpose vehicle (SPV) .

Question 16

The rating agencies analyze the structure to test whether the collateral's cash flows match the payments that must be made to satisfy the issuer's obligations and in doing so they must make assumptions about losses and delinquencies and consider various interest rate scenarios after taking into consideration credit enhancements.

Accepted Answer

A) True 
 B)False

Question 17

Which of the below statements is TRUE?

Accepted Answer

A)   Typically when amortizing assets are not securitized, the collateral is fixed over the life of the structure.
B)   To deal with situations where there may be a match between the cash flow characteristics of the asset and the liabilities, interest rate derivative instruments are used in a securitization
C)   The assets that are securitized can have a fixed rate or a floating rate.
D)   If the reference rate for the floating-rate bond classes decreases sufficiently, there could be a shortfall between the interest received from the collateral and the aggregate interest payment that must be made to the bond classes.

Question 18

In a securitization, a variety of third parties are involved including ________.

Accepted Answer

A)   credit guarantors (most commonly bond insurers)  and the servicer.
B)   a trustee and issuer's counsel.
C)   a guaranteed investment contract provider (this entity insures the reinvestment rate on investable funds)  and accountants.
D)   All of these

Question 19

The key benefit of securitization to financial markets is that it ________.

Accepted Answer

A)   allows for the creation of tradable securities with better liquidity for financial claims that would otherwise have remained in the portfolio of financial intermediaries and therefore highly illiquid.
B)   does not allow for the creation of tradable securities with better liquidity for financial claims that would otherwise have remained in the portfolio of financial intermediaries and therefore highly illiquid.
C)   allows for the creation of tradable securities with better illiquidity for financial claims that would otherwise have remained in the portfolio of financial intermediaries and therefore highly liquid.
D)   allows for the creation of tradable securities with better liquidity for market claims that would otherwise have remained out of the portfolio of financial intermediaries and therefore highly illiquid.

Question 20

Structuring a securitization will depend on the characteristics of the underlying assets. Specifically, the structure depends on whether ________.

Accepted Answer

A)   the assets are non-amortizing, and the interest rate on the collateral is fixed.
B)   the liabilities are amortizing or non-amortizing, and the interest rate on the collateral is fixed.
C)   the assets are non-amortizing, and the interest rate on the collateral is floating.
D)   the assets are amortizing or non-amortizing, and the interest rate on the collateral is fixed or floating.

Exam 25: Market for Asset-Backed Securities

External credit enhancements come in more complicated forms than internal credit enhancements and may alter the cash flow characteristics of the loans even in the absence of default.

Rate reduction bonds, also called stranded cost bonds or stranded asset bonds, are backed by a state-legislative approved special charge, referred to as the competitive transition charge, charged by pharmaceutical companies.

Securitization has resulted in financial disintermediation.

All loans must be serviced. What does servicing involve? What is the servicer responsible for?

Which of the below statements is FALSE?

There are three general categories of credit cards. Which of the below is NOT one of these categories?

What is the key benefit of securitization to financial markets?

Credit card payable-backed securities are backed by the cash flow of a pool of credit card receivables and the cash flow consists of finance charges collected, fees, and principal.

In assessing the risk on ABS, rating agencies ignore asset risks, structural risks, third parties to the structure, and the legal structure.

If there are a few borrowers in the pool that are significant in size relative to the entire pool balance, this diversification benefit can be lost, resulting in a higher level of credit risk referred to as ________.

Student loan-backed securities are backed by federally guaranteed and private student loans and involve three periods with respect to the borrower's payments: deferment period, grace period, and loan repayment period.

Securitization is a vehicle for raising funds directly in the public market without the need for a financial . That is, securitization is said to result in .

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

Which of the below statements is TRUE?

In a securitization, a variety of third parties are involved including ________.

The key benefit of securitization to financial markets is that it ________.

Structuring a securitization will depend on the characteristics of the underlying assets. Specifically, the structure depends on whether ________.