Which of the following statements is true regarding Special Purpose Vehicles (SPVs)and structured investment vehicles (SIVs)?
A)An SPV has no contingent credit risk when it sells asset-backed securities (ABSs)with recourse to investors.
B)An SPV retains the rights to the loans that are used as collateral in an asset-backed security.
C)An SIV potentially has more liquidity risk than the sponsoring FI due to the short-term nature of the liabilities and their reliance on short-term funds.
D)An SPV is allowed to accept deposits while the SIV must rely solely on other borrowings.

Question

Quizplus · Accepted Answer

SIVs have a high liquidity risk due to their reliance on short-term funding through commercial paper, while their assets are typically long-term. SPVs sell asset-backed securities to investors and retain no rights to the underlying loans. Additionally, SPVs may have contingent credit risk if they have recourse to investors. Neither SIVs nor SPVs can accept deposits, as they are not banks.

Which of the Following Statements Is True Regarding Special Purpose