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ch9,10 - ch9,10 Student 1 When a bank sets aside a group of...

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ch9,10 Student: ___________________________________________________________________________ 1. When a bank sets aside a group of income-earning assets and then sells securities based upon those assets it is ________________________ those assets. ________________________________________ 2. Often when loans are securitized they are passed on to a _________________________ who pools the loans and sells securities. ________________________________________ 3. A(n) _________________________ allows a homeowner to borrow against the residual value of their residence. ________________________________________ 4. _________________________ allow the bank to generate fee income after they have sold a loan. The bank continues to collect interest and principal from the borrowers and passes these collections to the loan buyers. ________________________________________ 5. In a _________________________ an outsider purchases part of a loan from the selling financial institution. Generally the purchaser has no influence over the terms of the loan contract. ________________________________________ 6. A(n) _________________________ is a contingent claim of the bank that issues it. The issuing bank, in return for a fee, guarantees the repayment of a loan received by its customer or the fulfillment of a contract made by its customer to a third party. ________________________________________ 7. A(n) _________________________ occurs when two banks agree to exchange a portion or all of the loan repayments of their customers. ________________________________________ 8. A(n) __________________ guards against the losses in the value of a credit asset. It would pay off if the asset declines significantly in value or if it completely turns bad. ________________________________________ 9. A(n) _________________________ combines a normal debt instrument with a credit option. It allows the issuer of the debt instrument to lower its loan repayments if some significant factor changes. ________________________________________ 10. The _________________________ of a standby letter of credit is a bank or other investor who is concerned about the safety of funds committed to the recipient of the standby letter of credit. ________________________________________ 1
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11. A(n) _________________________ guarantees the swap parties a specific rate of return on their credit asset. Bank A may agree to pay the total return on the loan to Bank B plus any appreciation in the market value of the loan. In return Bank A will often get LIBOR plus a fixed spread plus any depreciation in the value of the loan. ________________________________________ 12. The ________________________ is the party that is requesting a standby letter of credit. ________________________________________ 13. The __________________ is the bank or financial institution which guarantees the payment of the loan in a standby letter of credit. ________________________________________ 14. A(n) _________________________ is a loan sale where ownership of the loan is transferred to the buyer of the loan, who then has a direct claim against the borrower. ________________________________________ 15. Another type of loan sale is a(n) _________________________ which is a short dated piece of a longer maturity loan, entitling the purchaser to a fraction of the expected loan income. ________________________________________ 16. A relatively new type of credit derivative is a CDO which stands for __________________. ________________________________________ 17. Insurance companies are a prime __________ of credit derivatives. ________________________________________ 18. A(n) ____________________________ is an over-the-counter agreement offering protection against loss when default occurs on a loan or other debt instrument. ________________________________________ 19. A(n) _____________________________ is related to the credit option and is usually aimed at lenders able to handle comparatively limited declines in value but wants insurance against serious losses. ________________________________________ 20. There has been an explosion in _______________________ in recent years. These instruments rest on pools of credit derivatives that mainly insure against defaults on corporate bonds. The creators of these instruments do not have to buy and pool actual bonds but can create these instruments and generate revenues from selling and trading in them.
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