1.In a securitized transaction, over-collateralization on results when:
　　A. The originator puts aside some cash in a reserve account to absorb credit losses.
　　B. A securitization transaction carves up the cash flows generated from the assetpool into various pieces.
　　C. The interest payments and other fees received on the assets in the pool exceed the interest payment made on the asset-backcd security (ABS) plus the fee paid to service the assets along with miscellaneous expenses.
　　D. The value of the assets in the pool exceeds the amount of asset-backed security(ABS) involved.
　　2.A pass-through mortgage-backed security (MBS) has an effective duration of 10.0 years. The security is structured into two bonds: an interest-only strip and a principal strip. Which of the following statements is not true?
　　A. As the PSA increases, the value ofthe principal-only bond will increase.
　　B. As the PSA increases, the value of the interest-only bond will increase.
　　C. The duration of the IO strip is likely to be negative, even substantially negative.
　　D. The weighted average sum of the durations of the IP and PO strips must equal the 10.0 duration of the original pass through.
　　3.The buyer of a credit-default swap (CDS):
　　A. Has no risk exposure to the combined holdings of the CDS and reference obligation.
　　B. Is subject to the credit risk ofthe seller.
　　C. Must place collateral with the seller ofthe CDS to ensure performance.
　　D. Can surrender the CDS for the value ofthe accumulated payments.
　　Answer:
　　1.D
　　A Stands for cash reserve account
　　B Definition for subordinated tranching
　　C Mentions about excess spread
　　D Is correct defines over collateralization
　　2.B
　　Higher PSA implies lower rates, as PSA increase, the value of the IO is likely to decrease.
　　3.B
　　The buyer ofthe CDS faces the risk that the seller may not be able to make the required payment if the reference obligation defaults. Two factors impact this risk: (1) if the probability ofthe reference obligation defauIt increases with time, then so, too, may ihe probability of seller default, and (2) economic and operational factors may cause an increasc in thc correlation betwcen the default ofthe reference obligation and the seller's default.