Topic 7 Deciphering the Liquidity and Credit Crunch 2007-2008.pdf

The use of a purchased asset effectively as

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The use of a purchased asset effectively as collateral to borrow money against it is referred to as market liquidity. From a risk perspective, which of the following asset-backed security (ABS) tranches will most likely absorb the first losses in the ABS asset pool? Mezzanine tranche. Equity tranche. Senior tranche. Super-senior tranche. Investors frequently raise money to finance an investment purchase by using leverage and part of their equity to finance the purchase. During the 2007-2009 credit crisis, however, these investors were often forced to sell these investments or other assets due to a decline in their value while maintaining a constant leverage ratio. Raising
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A) B) C) D) Question #10 of 10 Question ID: 726915 A) B) C) D) money to finance investments and the forced sale of assets due to a decline in their value while maintaining a constant leverage ratio, respectively, refer to: Raising Money to Finance Investments Forced Sale of Assets Funding liquidity Loss spiral Market liquidity Margin spiral Market liquidity Loss spiral Funding liquidity Margin spiral The creation collateralized debt obligations (CDOs) most likely involves: the CDO issuer retaining the most senior tranches to give that bank incentive to monitor the loan. slicing the cash flows from a portfolio of collected debt securities into a number of investable tranches. selling the equity tranche to institutions that desire or require instruments with high credit ratings. forming an undiversified portfolio from a small sample of debt securities.
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  • Fall '18
  • Debt, Collateralized debt obligation

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