A Reason for "Securitizing" Mortgages Is to Allow a Bank

question 27

Multiple Choice

A reason for "securitizing" mortgages is to allow a bank to:

• A)buy other financial assets.
• B)consistently generate above-normal profits.
• C)maximize its risk.
• D)reduce loan default risk to zero.

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Definitions:

Economic Profits

Profits exceeding the total costs of production, including both explicit and implicit costs, representing gains above what could be earned in the next best alternative use of resources.

Pure Monopolist

A market participant who exclusively controls the supply of a particular good or service, without competition or substitute products.

ATC

Average Total Cost, which represents the per-unit cost of production, including both fixed and variable costs.

Economic Profit

Profit calculated by subtracting both explicit and implicit costs from total revenue, reflecting the true economic performance of a company.