To Create CDOs, a Bank Sells Most of Its Loans

question 38

Multiple Choice

To create CDOs, a bank sells most of its loans to _____ that specializes in issuing securities and bundles the loans into a pool.

• A)an investment bank
• B)a federal bank
• C)the government
• D)borrowers

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Definitions:

Surety

Surety is a financial arrangement where a third party (the surety) guarantees the performance of a primary party's obligations or undertakes to fulfill the primary party's obligations if the primary party fails to do so.

Guarantor

An individual or party that guarantees to pay back a loan or fulfill another obligation if the primary party fails to do so.

Liability

The state of being legally obligated and responsible for something, typically involving restitution for harm or damages caused.

Principal Obligation

The main debt or duty that a debtor is bound to fulfill under the terms of a contract.