Which of the following is TRUE concerning the early amortization trigger for a credit card receivable-backed security? An early amortization trigger leads to: A) credit card tranches being retired sequentially. B) partial default. C) the principal payments made by credit card holders being reinvested in receivables.
A
Which of the following statements regarding synthetic collateralized debt obligations (CDOs) is FALSE? A) The senior portion doesn’t require funding. B) The ramp up period is longer than that for cash CDOs. C) A credit default swap is sold.
B
A B
Can you explain the answers?
correct A and B. Synthectic CDOs have shorter ramp up period than Cash CDOs as they do not raise cash.
Which of the following statements regarding synthetic collateralized debt obligations (CDOs) is FALSE? A) The senior portion doesn’t require funding. B) The ramp up period is longer than that for cash CDOs. C) A credit default swap is sold. A is true. Senior doesn’t pay anything up front (only the Junior tranches do) to raise cash for the synthetic CDO. The structure then sells CDS premiums which are used to pay the Junior tranche. If I recall (it’s been a while), the initial investment by the junior tranche is put in high quality securities. The senior tranche accepts a small periodic payment in return for taking on risk in case the underlying asset covered by the CDS defaults.
Hi TheAliMan - will ping you about this tonight.