[2008]Topic 50: Synthetic Structure 相关习题 following, including, private, parties, market

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AIM 1: Describe a credit-linked note, including its risks and benefits.

1、Regarding the market for credit-linked notes (CLNs), which of the following is TRUE? The notes are often traded:

A) on organized exchanges but are illiquid.

B) among private parties and are liquid.

C) among private parties and are illiquid. 

D) on organized exchanges and are liquid.

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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.

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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.

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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. 

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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.

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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.

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2、Which of the following statements regarding synthetic collateralized debt obligations (CDOs) is FALSE?

A) The ramp up period is longer than that for cash CDOs.

B) The senior portion doesn’t require funding.

C) A credit default swap is sold. 

D) The junior section absorbs losses before the senior section.

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The correct answer is A

In a synthetic CDO, the ramp up period is shorter than the ramp up period for cash CDOs because no actual (cash) debt obligations are purchased. Instead, the synthetic CDO gains exposure and earns a return by selling a credit default swap. By selling a credit default swap, they pay the buyer a specific amount if a credit event occurs (e.g. bankruptcy) and in return receive a swap premium. In essence, the CDO has credit exposure and earns a return just as if they had bought the underlying bond. The senior portion doesn’t require funding and the junior section absorbs losses before the senior section.

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3、Which of the following best describes the difference between cash and synthetic collateralized debt obligations (CDOs)? In a synthetic CDO, the assets are:

A) on the balance sheet, and a default swap is purchased.

B) off-balance sheet, and a risk-free bond is purchased.

C) on the balance sheet, and a risk-free bond is purchased. 

D) off-balance sheet, and a default swap is purchased.

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The correct answer is B

In a synthetic CDO, the special-purpose vehicle (SPV) does not invest in the underlying assets but instead gains exposure to the assets by selling a default swap. The SPV uses the swap premium and cash from selling tranches to invest in a risk-free bond. In a cash CDO, the SPV does purchase the underlying assets.