The Bundling of Mortgages Together and the Issuing of Securities

question 46

Multiple Choice

The bundling of mortgages together and the issuing of securities for their financing made it possible for investment banks to

• A) reduce their exposure to risk in the event that the overall mortgage default rate rose.
• B) reduce the amount of capital required to back these bundled securities.
• C) build up large reserves so they would be able to meet their obligations even if the mortgage default rate rose substantially.
• D) quickly access funds to meet short-term debt obligations.

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Definitions:

Direct Labor

The cost of wages paid to workers directly involved in the production of goods or services, not including indirect labor costs.

Goods Sold

Refers to the total quantity or value of products that a company has sold over a particular period.

Goods Manufactured

Items that have been completed and are ready for sale, produced by a company during an accounting period.

Sales Salaries

Expenses associated with the payment of salaries to sales personnel, often included as part of a company's selling expenses.