According to the waterfall principle of securitizationQuestion 7Answera.... investors with lower seniorityshould receive all their cash flows before the oneswith the higher seniority receive their cash flows.b.... investors with higher seniority are more likelyto be paid later than the ones with lower seniority.c....during the Credit Crisis of 2008/9, assets wereover-rated by the credit rating agencies, in particularthe more senior tranches.d....the mezzanine tranches of ABSS tended to bethe largest ones of these securitized assets.

The correct answer to this question is:c.... during the Credit Crisis of 2008/9, assets were…

Answered: According to the waterfall principle of…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Negative Interest rate a. This action was meant to complement the quantitative easing b. encourages banks to lend more instead of keeping them as excess reserves. c. Customers will consume more and deposit less. all are correct.
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What is shadow banking and how does it differ from traditional retail banking? What kind of threat does shadow banking pose to the financial system? Discuss the role of shadow banking in the financial crisis of 2007-2008.
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In 2008 there was an increase in uncertainty about the quality of structured financial products that were backed by mortgages (MBS - mortgaged backed securities). So that the market for these securities dried up (became less liquid). Explain why this could happen using the adverse selection logic
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You recently found out that when the market is in recession, ALL assets seem to suffer from some degree of liquidity problems as there are less trades than usual, and thus it is hard to sell an asset without losing some of its fair value. So, you concluded that at least some portion of liquidity risk must be systematic in nature and therefore it must be compensated by the market. To verify this, you cut the market portfolio in half by the illiquidity measure developed by Amihud (2002) [So that you have one relatively liquid portfolio and one relatively illiquid portfolio. Assume that this measure is reliable.] and calculated the market liquidity risk premium as follows: Market liquidity risk premium = Expected return on the illiquid portfolio - Expected return on the liquid portfolio = [E(RIL) - E(RL)] Then you formed 5 portfolios from the entire market based on liquidity (Amihud measure) and estimate the factor loading β (called liquidity beta) of each portfolio using [RIL - RL] as…
1 What is the Advantage and Disadvantage of Liquidity management under reserve shortfalls based on the below 4 points1? securities sale 2. reduce loans 3. emergency borrowing from CB 4. borrowings from other banks

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