Reading 60: Asset-Backed Sector of the Bond Market - LOS

答案和详解如下：

11．All of the following are examples of internal credit enhancements EXCEPT:

A)   cash reserve funds.

B)   excess servicing spread accounts.

C)   bond insurance.

D)   over-collateralization.

The correct answer was C)    

Bond insurance is an example of external, not internal credit enhancement.

12．External credit enhancement does NOT include:

A)   revenue fund.

B)   bond insurance.

C)   a letter of credit from a bank.

D)   corporate guarantee.

The correct answer was A)

External enhancements include corporate guarantees, letters of credit from a bank, and bond insurance. A revenue fund is not an external enhancement it is an internal enhancement.

13．Which of the following is a general problem associated with external credit enhancements? External credit enhancements:

A)   are only available on a short-term basis.

B)   are very long-term agreements and are therefore relatively expensive.

C)   are subject to the credit risk of the third-party guarantor.

D)   only provide protection against systematic risk, not against idiosyncratic risk.

The correct answer was C)

According to the “weak link” philosophy adopted by rating agencies, the credit quality of an issue can not be higher than the credit rating of the third-party guarantor. Along these lines, if the guarantor is downgraded, the issue itself could be subject to downgrade even if the structure is performing as expected.

14．Which of the following is NOT a form of internal credit enhancement?

A)   Reserve funds.

B)   Overcollateralization.

C)   A senior/subordinated structure.

D)   Sequential-pay structure.

The correct answer was D)

External credit enhancements are financial guarantees from third parties that generally support the performance of the bond. Internal credit enhancements do not rely on a third-party guarantee. They commonly include setting aside reserve funds, overcollateralization, and structures that contain senior and subordinated debt.

15．All of the following are examples of internal credit enhancements EXCEPT:

A)   third party guarantees.

B)   setting aside reserve funds.

C)   over collateralization.

D)   structures containing senior and subordinated debt.

The correct answer was A)

Third party guarantees are external credit enhancements, not internal enhancements.