QUESTION 7 which of the following is NOT a reason for using a bad bank as a vehicle to add value in the loan sale process? A. Contracts for managers can be created to maximize the incentives to generate enhanced values from loan sales. B. The bad bank enables bad assets to be managed by loan workout specialists. C. The bad bank does not need to be concerned about liquidity needs since it does not have any deposits. D. Moving the bad loans off the balance sheet of the good bank will improve the markets perception, and thus performance, of the good bank. E. The good bank-bad bank structure increases information asymmetries regarding the value of the good bank's assets. QUESTION 11 The following questions are from Chapter 26 Securitization, One difference between a Special Purpose Vehicle (SPV) and a Structured Investment Vehicle (SIV) is that the A. SIV can potentially earn an expected spread between its high-yielding assets and the relatively short-term, low cost funds that it borrows in addition to servicing fees. B. SPV retains ownership of the loans while the SIV sells the loans without recourse so the loan rights are transferred to the investor. CSPV may have a line of credit or a loan commitment from the sponsoring institution it a loan goes bad and it cannot make payments to investors: the si has no such arrangement, D. SIV is just passing cash flows it receives through to the ultimate investor the SPV has fixed payment obligations that must be met regardless of cash flows received on the loan portfolio E SPV is formed by depository institutions and the SIV is formed by non-depository institutions. QUESTION 14 Which of the following does NOT contribute to the fact (before the financial crisis) that SIV is a more lucrative model than SPV in general? A Unlike SPV, SIV investors have no direct rights to the cash flows on the underlying loans in the portfolio B. SIV'S ABCP obligations carry interest obligations that are independent of the cash flows from the underlying loan/asset portfolio, while SPV pays out what it receives from the underlying loans in the pool of assets backing the ABS. c. Whereas a SPV earns only the fee for the creation of the asset-backed securities, the SIV earns an expected spread between high-yielding assets and low- cost commercial paper D. SIV invests in assets that are designed to generate higher returns than the Sit's cost of fund. E. If the assets in the underlying pool does not generate sufficient cash flows, the SIV is still obligated to make interest and principle payments on its debt instruments QUESTION 15 Which of the following statements about SPV and SIV is NOT correct? A SIV's lifespan is not tied to any particular security, while SPV's life is limited to the maturity of the ABS. B. Unlike SPV Siv does not simply pass through the payments on the loans in its portfolio to the ABCP investors. CSPV pays out only what it receives from the underlying loans in the pool of assets backing the ABS. D. SIV is responsible for payments on its ABCP obligations whether or not the underlying pool of assets generates sufficient cash flow to cover these costs E. None of the above D - sponsored All of the options QUESTION 17 (Bonus Question, 5 points). Which of the following statements is correct? A The availability of a liquid secondary market for asset-backed securities discouraged Fis to follow an originate-to-distribute strategy of loan origination 8. Securitization of assets increases the Fi's capital requirements. c When a Special Purpose Vehicle (SPV) creates asset backed securities, the SPV retainis ownership of the original assets. D. Investors in a Structured Investment Vehicle (SIV) have direct right to the cash flows on the underlying portfolio of the si E. None of the above. QUESTION 18 (Bonus Question, 5 points). Which of the following statements is NOT correct regarding securitization? A. By securitizing, Fl's profitability becomes more fee-dependent than interest rate spread dependent B. By securitizing, Flis acting more like an asset broker than a traditional asset transformer, C. By securitizing, fi no long has to bear the illiquidity and duration mismatch risks that arise when it acts as an asset transformer D. By securitizing, FI can downsize their liquid assets and keep a highly liquid asset portfolio, but it does not help to enhance an F's profits. E. None of the above
