What Action Is Involved in Constructing a Synthetic CDO

question 3

Multiple Choice

What action is involved in constructing a synthetic CDO?

• A)Selling protection via CDS contracts.
• B)Buying protection via CDS conracts.
• C)Selling tranches of other CDOs.
• D)Buying a diversified equity portfolio.

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Definitions:

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.

Business Combination

A transaction or event where two or more companies merge or one company acquires another to consolidate business operations.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the cost per unit of output decreases with increasing scale.

Horizontal Merger

The combination of two or more firms competing in the same market with the same good or service.