Chapter 5

4)A is a securitized financial instrument that is sold to the market in tranches representing different levels of default risk. A) guaranteed security asset (GSA) B) mortgaged backed security (MBS) C) credit default swap (CDS) D) collateralized debt obligation (CDO) 5) Which of the following statements concerning credit default swapsis FALSE? A) As of year-end 2008, CDSs are completely outside of regulatory boundaries. B) A CDS is a derivative security that may be used for hedging risk or for speculative purposes. C) In order be a party to a CDO, at least one of either the buyer or seller must own the underlying asset D) CDSs allow banks to severe their links to their borrowers, thereby reducing their incentive to screen and monitor the ability of borrowers to repay. 6) is the method of making investments more attractive to prospective buyers by reducing their perceived risk. A) Subordination B) Credit enhancement C) Derivation D) Deregulation 5.3 The Fallout: The Crisis of 2007 and 2008 1) Which of the following is NOT identified by the authors as a "safe haven" currency? A) The euro. B) The British pound. C) The U.S. dollar. D) The Japanese yen. 2) The accounting procedure whereby assets are revalued to market value basis on a daily basis is known as A) FASB rule 62 B) market value accounting C) marked-to-market D) none of the above 3) The typical TED spread, the difference between the LIBOR and the interest rate swap index, is typically about_ basis points. A) 350 B) 180 C) 120 D) 80