CFA Level I · CFA Level I Exam · Asset-Backed Security (ABS) Instrument and Market Features
Compared with a cash flow CDO, a synthetic CDO is most likely to obtain its exposure to the reference debt obligations through:
A synthetic CDO gains its exposure through credit default swaps. Instead of buying the reference debt obligations outright, as a cash flow CDO does, it sells credit protection on them, so the tranche investors take on the credit risk without the entity owning the underlying debt.
- Acredit default swapsCorrect
- Bowning the loans outright
- Cissuing senior secured loans
Explanation
A synthetic CDO does not buy the reference obligations; it gains the credit exposure by selling credit protection via credit default swaps. A cash flow CDO owns the debt directly. Synthetic CDOs therefore do not need to fund a full collateral purchase.
Did you get it right without looking?
One question tells you little. A timed set on Asset-Backed Security (ABS) Instrument and Market Features shows your real accuracy, how long you take and where you lose marks.
More Asset-Backed Security (ABS) Instrument and Market Features questions
- A court finds that an originator kept effective control over receivables it transferred to an SPE and treats the transfer as a secured loan …
- In a CDO, the tranche that is most likely to receive the highest expected return, and absorb losses first, is the:
- A credit card receivables ABS is in its lockout (revolving) period. During this period, principal payments collected from cardholders are mo…
- A CDO has total collateral of 200 million with an equity tranche of 20 million, a mezzanine tranche of 60 million and a senior tranche of 12…
- The transfer of receivables from an originator to a special purpose entity is most likely intended to achieve bankruptcy remoteness because,…
- In a collateralized debt obligation (CDO) structure, the entity that issues the tranches and holds the pool of debt obligations as collatera…