wanganjie

 

2、Which of the following is NOT an example of providing credit support in a securitization?

A) Creating subordinated tranches.

B) Eliminating first loss positions.

C) Generating excess spread.

D) Over collateralizing.

wanganjie

 

The correct answer is B

First loss positions provide credit support in a securitization. Eliminating first loss positions would remove credit support.

wanganjie

 

3、Which of the following statements about credit enhancement is FALSE?

A) Excess spread is a form of external credit enhancement. 

B) Cash collateral account is a form of internal credit enhancement. 

C) A credit default swap is a form of external credit enhancement. 

D) Overcollateralization is a form of internal credit enhancement. 

wanganjie

 

The correct answer is A

Excess spread is a form of internal credit enhancement where the differential cash flows between the SPE assets and liabilities is diverted to provide support against shortfalls.

wanganjie

 

4、There is difficulty in achieving risk transfer from securitized assets sold through all of the following EXCEPT:

A) first-loss retention. 

B) true sale.

C) overcollateralization.

D) credit enhancement.

wanganjie

 

The correct answer is B

The only time risk transfer can take place from loan originators to the investors is if there are no credit enhancements, such as over-collateralization or retention of first loss positions. Effective risk transfer can only occur in the situation of a true sale from the loan originator to the special purpose entity created to sell the assets as asset-backed securities.

wanganjie

 

5、Credit enhancement for asset-backed securities (ABSs) is typically achieved through all of the following EXCEPT:

A) overcollateralization.

B) creation of a subordinated tranche.

C) a call provision. 

D) an excess spread.

wanganjie

 

The correct answer is C

Credit enhancement for asset-backed securities (ABSs) is typically achieved through overcollateralization, an excess spread between payments promised and payments to be received, creation of a subordinated tranche to bear default risk, or provision of a third-party guarantee.

likaiba

 

6、Which of the following is least likely an example of internal credit enhancement?

A) Bond insurance.

B) Cash reserve funds.

C) Excess servicing spread accounts.

D) Over-collateralization.

likaiba

 

The correct answer is A

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