Question 1

i) Securitisation is the process of:

Select one:

a. hiring underwriters to ensure share issues are fully subscribed.

b. only lending and/or investing with companies that have an AAA credit rating.

c. making assets marketable by aggregating income-producing assets in a pool and issuing new securities backed by the pool.

d. converting tradeable securities into illiquid assets such as bank loans. Incorrect

ii)

The term to 'underwrite' refers to:

Select one:

a. insurance offered by banks against changes to mortgage interest rates.

b. a type of insurance that is offered by brokers to investors for protection against capital loss.

c. an agreement by a broker to buy a portion of shares that are to be issued.

d. a legal contract binding both the seller and buyer of shares against potential loss.

iii)

Why do banks often act as intermediaries to obtain funds for companies from overseas?

Select one:

a. They typically have high credit ratings and hence are better placed to borrow money overseas than many companies.

b. Borrowing funds from overseas sources is risky, and where a bank acts as an intermediary they bear all the default and foreign exchange risk.

c. It is illegal for companies to obtain funds from abroad unless they are listed as a financial intermediary with APRA.

d. Because borrowers want to minimize their tax obligation.

iv)

The process of securitization such as issuing residential mortgage-backed securities (RMBS) allows financial institutions to:

Select one:

a. fund lending indirectly through the capital market.

b. none of the given answers.

c. fund lending directly.

d. creates deposits.