CDOs Are Categorized Based on the Motivation of the Sponsor

question 5

Multiple Choice

CDOs are categorized based on the motivation of the sponsor of the transaction. If the sponsor's motivation is to earn the spread between the yield offered on the collateral and the payments made to the various tranches in the structure, then the transaction is referred to as ________.

• A) a collateral transaction.
• B) an arbitrage transaction.
• C) a motivational transaction.
• D) All of these

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Definitions:

Federal Deficits

The financial situation in which the government's expenditures exceed its revenues in a given fiscal year.

Public Capital

Assets owned by the public sector or government, including infrastructure like roads, bridges, schools, and hospitals that are used for public services.

Income Redistribution

The transfer of income from certain individuals or groups to others through government policies like taxation and social benefits.

Government Securities

Financial instruments issued by a government to finance its expenditure, including bonds, bills, and notes.