23-84 a Digital Default Option

question 109

Multiple Choice

23-84 A digital default option

• A)always pays the par value of a loan if exercised.
• B)has a payout that is capped at 80 percent of the par value of the loan.
• C)will cause the FI never to lose more than the premium paid to purchase the option.
• D)Answers A and C only.
• E)Answers A and B only.

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Definitions:

Approval Board

A committee or group responsible for reviewing and approving decisions or policies within an organization.

Standby Underwriting

A type of underwriting agreement in which the underwriter agrees to buy any shares not purchased by investors during a public offering.

Underwriting Syndicate

A group of underwriters who come together to share the risk and to help sell an offering of securities to the public.

Rights Offering

A financial opportunity offered by a corporation to its existing shareholders to purchase additional shares directly from the company at a discounted price.