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Cards In This Set
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Securitization is designed to turn illiquid loans into liquid assets in the form of securities in the opwn market
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T
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Securitized assets carry a unique form of risk called
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Prepayment risk
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The party for whom a standby credit letter is issued by a bank is known as the
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Account party
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When a bank issues a standby credit guarantee on behalf of one of its customers, the party receiving the gurantee is known as the
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Beneficiary
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Securitization had its origin in the selling of securities backed by
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Residential mortgage loans
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The key advantages of issuing standby letters of credit include which of the following
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A. Letters of credit generate fee income for the bank.
b. Letters of credit typically reduce the borrower's cost of borrowing. c. Letters of credit can usually be issued for a relatively low cost. d. The probability is low that the issuer of the letter of credit will be called upon to pay. E. All of the above. |
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The bank or other lender whose loans are pooled is called
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The originator
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Which of the following is an advantage of securitizing loans?
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A. diversifying a lender's credit risk exposure
b. reduces the need to monitor each individual loan's payment stream c. an transform illiquid assets into liquid assets d. can be a new source of funds for lenders and attractive investments for investors E. all of the above are advantages of securitizing loans |
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Principal roles that a financial institution's investment portfolio play include which of the following?
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A. Income stability
b. Geographic diversification c. Hedging interest rate risk d. Backup liquidity E. All of the above |
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. _____________ is the method by which banks can provide a safeguard for the deposits of governmental units.
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Pledging
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Investment securities are expected to help stabilize a financial institutions's income.
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T
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One investment maturity strategy popular among smaller institutions is the ladder or spaced maturity policy. It is popular because it does not take much expertise to implement.
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T
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An important investment security popular with banks that must by law mature within one year from the date of issue and which has a high degree of safety and marketability is the:
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Treasury bill
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Banks are generally not allowed to invest in speculative grade bonds. What kind of risk is this designed to limit?
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Credit risk
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When a bank sets aside a group of income-earning assets and then sells securities based upon those assets it is ________________________ those assets.
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Securitizing
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