ikoreaii

The most important issue for the credit analysis of an asset-backed security is:

A) quality of collateral.

B) quality of the seller/servicer.

C) legal structure.

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The analyst must determine the quality of the collateral. The collateral must generate the needed cash flow to service the debt.

ikoreaii

Which of the following is NOT a primary factor considered by rating agencies in rating asset-backed securities?

A) Character of the underwriter.

B) Seller/service quality.

C) Cash flow stress.

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When rating asset-backed securities, the rating agency considers collateral credit quality, seller/service quality, cash flow stress, and payment structure and legal structure.

ikoreaii

Which of the following statements regarding factors considered by rating agencies in rating asset-backed securities is least accurate?

A) A firm's credit rating must be less than or equal to its overall corporate rating.

B) The borrower's equity in an asset that has been offered as collateral is the primary determinant of whether the borrower will default or sell the asset to pay off the loan.

C) The servicer of the loan must be evaluated since the servicer is responsible for distributing proceeds to the bondholders, determining the interest rate for the period, and advancing payments when there are delinquencies.

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If a firm has structured securitized assets so that, in the event of bankruptcy, the courts will not apply the cash flow from the collateral toward the satisfaction of general corporate liabilities, then it is possible to obtain a credit rating higher than its overall corporate rating.

ikoreaii

When assessing the risk of tax-backed municipal bonds, it is important to analyze all of the following factors EXCEPT:

A) whether there are sufficient covenants to ensure revenues are not redirected for purposes other than the payment of tax-backed municipal bonds.

B) the issuer's ability and political discipline to maintain a sound budgetary policy.

C) evaluating the issuer's socioeconomic environment.

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When evaluating tax-backed debt the analyst should assess the issuer’s debt structure, budgetary policy, local tax and intergovernmental revenue availability, and the issuer’s socioeconomic environment.

ikoreaii

Which of the following securities is analyzed in much the same way as corporate bonds?

A) Foreign currency debt securities.

B) Municipal tax-backed debt.

C) Municipal revenue bonds.

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Revenue bonds are evaluated much like corporate bonds, because the primary concern is whether or not enough cash flow will be generated to satisfy the debt obligations.

ikoreaii

Which of the following factors used to assess municipal tax-backed debt analyzes the issuer’s ability to manage general operating funds?

A) Issuer's debt structure.

B) Budgetary policy.

C) Local tax and intergovernmental revenue availability.

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The analysis of budgetary policy entails the assessment of the issuer’s ability to manage general operating funds.

ikoreaii

Each of the following factors are employed in the assessment of "tax-backed" municipal bonds EXCEPT:

A) Credit quality of the collateral.

B) Issuer's debt structure.

C) Local tax availability.

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There is typically no collateral pledged to a general obligation municipal bond.

ikoreaii

Which of the following statements regarding the comparison of "general obligation" and "revenue" municipal bonds is least accurate?

A) Revenue bonds are backed by the full faith and credit of the issuing municipality.

B) Revenue bonds must be evaluated with respect to their covenants such that revenues from the project are not redirected toward other uses within the community.

C) General obligation bonds must be evaluated with respect to the issuer's existing debt structure and the ability of the local government to generate the requisite level of taxes to repay the debt.

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The cash flows (revenue) from the project that the revenue bond funded are used to service the bond.

ikoreaii

What is the key difference between a local currency debt rating and a foreign currency debt rating?

A) A foreign currency debt rating relies on the country's ability to generate appropriate foreign currency cash flows via its trade flows.

B) Local currency debt ratings are uncorrelated with the country's foreign currency debt ratings.

C) A foreign currency debt rating depends primarily upon the economic infrastructure of the economy and the level of education and living standards in the country.

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A foreign currency debt rating relies on the country's ability to generate appropriate foreign currency cash flows via its trade flows.

ikoreaii

Which of the following is least likely a factor used by Standard & Poor’s rating agency to assess the creditworthiness of a government’s foreign currency debt?

A) Income and economic structure.

B) Net public debt.

C) Country's balance of payments.

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For foreign currency debt, Standard & Poor analyzes a country’s balance of payments, net public debt, total net external debt and net external liabilities.