Which of the following statements about special purpose vehicles (SPVs) is least accurate?

A) SPVs are also known as bankruptcy remote entities.

B) They are only used in asset backed security transactions.

C) SPVs shield the assets of an asset backed security from creditors of the corporation that is securitizing the assets.

Which of the following statements about asset backed securities (ABSs) is most accurate?

A) Residential mortgages represent the largest type of asset that has been securitized.

B) The credit rating of an ABS must be the same as that of the issuer.

C) Credit enhancements are uncommon for ABS.

Which of the following reasons is the best reason NOT to enhance the credit quality of an asset backed security (ABS) pool?

A) Liquidity.

B) Increase the chance of bankruptcy.

C) Cost.

Which of the following entities play a critical role in the ability to create an asset backed security with a higher credit rating than the corporation?

A) Rating agencies.

B) Special purpose vehicles (SPVs).

C) Investment banks.

Which of the following statements about special purpose vehicles (SPVs) is most accurate?

A) SPVs do not legally own the assets of the asset backed pool.

B) If bankruptcy occurs, a judge could rule that the SPVs assets can be considered general assets of the corporation.

C) SPVs are used exclusively for asset backed transactions.

The issuance of asset backed securities (ABSs) versus straight debt would be desirable if:

A) a better credit quality is desired on the asset backed versus the corporation.

B) there are time constraints on the deal.

C) the corporation's credit rating may go up in the future.

To reduce the cost of long-term borrowing, a corporation with a below average credit rating could:

A) decrease credit enhancement.

B) issue commercial paper.

C) issue asset backed securities.

A corporation may issue asset backed securities because:

A) both of the reasons are valid.

B) it wants to change the structure of its balance sheet.

C) it wants to reduce the cost of borrowing.

Which of the following statements concerning asset-backed securities (ABSs) is least accurate?

A) The asset-backed pool may be overcollateralized to provide a credit enhancement.

B) Typical assets to securitize are auto loans and credit card receivables.

C) ABSs typically have lower debt ratings than the firm's other borrowings.

External credit enhancement least likely includes:

A) corporate guarantee.

B) bond insurance.

C) revenue fund.

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

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

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

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

Which of the following terms describe external credit enhancements for asset backed securities?

A) Corporate guarantee.

B) Bond insurance.

C) Both of these choices are external credit enhancements.

There are several types of external credit enhancements. All of the following are examples of external credit enhancements EXCEPT:

A) setting aside reserve funds.

B) letters of credit.

C) corporate guarantees.