An SEC Rule Change Allowing Investment Banks to Increase the Leverage

question 543

Multiple Choice

An SEC rule change allowing investment banks to increase the leverage of their investment capital prompted many investment banks to

• A) increase the amount of assets held in relation to mortgage-backed securities being issued.
• B) decrease the amount of assets held in relation to mortgage-backed securities being issued.
• C) decrease the amount of mortgage-backed securities being offered.
• D) reduce the ratio of mortgage loans to equity capital of the investment bank.

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Definitions:

Leveraged Lease

A lease agreement wherein the lessee uses borrowed funds to lease an asset, allowing for tax benefits and potential gains on the lease.

Nonrecourse Basis

Financing or loans where the lender's only assurance for repayment is the borrower's collateral, with no personal liability on the borrower's part.

Financial Lease

A long-term lease agreement that does not transfer ownership of the asset to the lessee but is considered a purchase and financing arrangement for accounting purposes.

Leasing (NAL)

An agreement where an asset is rented for a specific period of time, but not applicable here as NAL is an unrecognized abbreviation in this context.