Question 1

A(n)_________________________ occurs when two banks agree to exchange a portion or all of the loan repayments of their customers.

Accepted Answer

credit swap

Question 2

Often when loans are securitized,they are passed on to a(n)________________ which pools the loans and sells securities.

Accepted Answer

special-purpose entity

Question 3

The customer that is requesting a standby letter of credit is known as the __________.

Accepted Answer

account party

Question 4

A(n)_________________________ guarantees the swap parties a specific rate of return on their credit assets.Bank A may agree to pay the total return on the loan to Bank B plus any appreciation in the market value of the loan.In return Bank A will often get LIBOR plus a fixed spread plus any depreciation in the value of the loan.

Accepted Answer

The answer of A(n)_________________________ guarantees the swap parties a specific...

Question 5

A relatively new type of credit derivative is a CDO which stands for _______________.

Accepted Answer

The answer of A relatively new type of credit derivative...

Question 6

A(n)__________________________ is related to a credit option and is usually aimed at lenders who are able to handle comparatively limited declines in value but want insurance against serious losses.

Accepted Answer

The answer of A(n)__________________________ is related to a credit option...

Question 7

A(n)_________________________ is a contingent claim of the firm that issues it.The issuing firm,in return for a fee,guarantees the repayment of a loan received by its customer or the fulfillment of a contract made by its customer to a third party.

Accepted Answer

The answer of A(n)_________________________ is a contingent claim of the...

Question 8

In a(n)_________________________ an outsider purchases part of a loan from the selling financial institution.Generally the purchaser has no influence over the terms of the loan contract.

Accepted Answer

The answer of In a(n)_________________________ an outsider purchases part of...

Question 9

The _________________________ of a standby letter of credit is a bank or other investor who is concerned about the safety of funds committed to the account party.

Accepted Answer

The answer of The _________________________ of a standby letter of...

Question 10

A(n)_________________________ allows homeowners to borrow against the residual value of their residence.

Accepted Answer

The answer of A(n)_________________________ allows homeowners to borrow against the...

Question 11

When a bank sets aside a group of income-earning assets and then sells securities based upon those assets,it is ________________________ those assets.

Accepted Answer

The answer of When a bank sets aside a group...

Question 12

_________________________ allow the banks to generate fee income after they have sold a loan.The bank continues to collect interest and principal from the borrowers and passes these collections to the loan buyers.

Accepted Answer

The answer of _________________________ allow the banks to generate fee...

Question 13

A(n)_________________________ combines a normal debt instrument with a credit option.It allows the issuer of the debt instrument to lower its loan repayments if some significant factor changes.

Accepted Answer

The answer of A(n)_________________________ combines a normal debt instrument with...

Question 14

A(n)_______________ is an over-the-counter agreement offering protection against loss when default occurs on a loan or other debt instrument.

Accepted Answer

The answer of A(n)_______________ is an over-the-counter agreement offering protection...

Question 15

A(n)__________________ guards against the losses in the value of a credit asset.It would pay off if the asset declines significantly in value or if it completely turns bad.

Accepted Answer

The answer of A(n)__________________ guards against the losses in the...

Question 16

There has been an exponential growth in the ___________________ market in recent years.These instruments rest on pools of credit derivatives that mainly insure against defaults on corporate bonds.The creators of these instruments do not have to buy and pool actual bonds but can create these instruments and generate revenues from selling and trading in them.

Accepted Answer

The answer of There has been an exponential growth in...

Question 17

Insurance companies are the principal __________ of credit derivatives.

Accepted Answer

The answer of Insurance companies are the principal __________ of...

Question 18

A(n)_________________________ is a form of loan sale where the ownership of a loan is transferred to the buyer of the loan,who then has a direct claim against the borrower.

Accepted Answer

The answer of A(n)_________________________ is a form of loan sale...

Question 19

A(n)__________________ is the party,often a bank or a financial institution,which guarantees the payment of the loan in a standby letter of credit.

Accepted Answer

The answer of A(n)__________________ is the party,often a bank or...

Question 20

A(n)_________________________ is a type of loan sale which is a short-dated piece of a longer maturity loan,entitling the purchaser to a fraction of the expected loan income.

Accepted Answer

The answer of A(n)_________________________ is a type of loan sale...

Quiz 9: Risk Management: Asset-Backed Securities, Loan Sales, Credit Standbys, and Credit Derivatives