aianjie

 

4、Synthetic collateralized debt obligations:

A) directly invest in loans but not bonds.

B) directly invest in both loans and bonds.

C) directly invest in bonds but not loans.

D) do not directly invest in underlying loans and bonds.

aianjie

 

The correct answer is D

Synthetic collateralized debt obligations typically do not directly invest in either bonds or loans. Instead, they gain exposure to the risk and return of these instruments via derivatives.

aianjie

 

5、With respect to the use of credit default swaps and total return swaps, a synthetic collateralized debt obligation can use:

A) neither to obtain exposure to the return of loans and bonds. 

B) both to obtain exposure to the returns of loans and bonds.

C) only credit default swaps to obtain exposure to the returns of loans and bonds.

D) only total return swaps to obtain exposure to the returns of loans and bonds. 

aianjie

 

The correct answer is B

Synthetic CDOs use both credit default swaps and total return swaps to obtain the desired exposure to loans and bonds.

aianjie

 

6、Synthetic collateralized debt obligations typically receive income from:

A) selling credit protection but not from investing in assets using capital from investors.

B) investing in assets using capital from investors but not from selling credit protection.

C) selling credit protection and from investing in assets using capital from investors.

D) neither selling credit protection nor from investing in assets using capital from investors.

aianjie

 

The correct answer is C

The CDO “sells” protection by taking on credit risk with derivatives. The CDO invests the capital of investors in traditional assets, e.g., bonds, which earn a return.