QUESTION: TRANCHES Assume that $100 million face value of MBS were used to create the following tranches issued by Quick Money" SPV: Amount in million Bond Rating Aa1 Aa2 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 $ 30 $ 20 $ 10 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 Allocation in % Risk weights for CAR (APRA APS 120) 20% 20% 20% 20% 50% 50% 50% 100% 100% 100% 350% Assets Cash Liabilities and equity $10 Demand deposits $90 $15 Equity $10 $5 $70 Quick Money Aaa tranche Quick Money Ba1 tranche Loans (risk weight 100%) d) Big Bank gets an offer to swap all its loans against Quick Money A3 tranches one dollar for one dollar. Explain why this might be an attractive offer from a Capital Management point of view. QUESTION: TRANCHES Assume that $100 million face value of MBS were used to create the following tranches issued by Quick Money" SPV: Amount in million Bond Rating Aa1 Aa2 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 $ 30 $ 20 $ 10 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 Allocation in % Risk weights for CAR (APRA APS 120) 20% 20% 20% 20% 50% 50% 50% 100% 100% 100% 350% Assets Cash Liabilities and equity $10 Demand deposits $90 $15 Equity $10 $5 $70 Quick Money Aaa tranche Quick Money Ba1 tranche Loans (risk weight 100%) d) Big Bank gets an offer to swap all its loans against Quick Money A3 tranches one dollar for one dollar. Explain why this might be an attractive offer from a Capital Management point of view