Which of the following statements about a cash collateralized debt obligations (CDO) special-purpose vehicle (SPV) is true?
A. In a cash CDO, the SPV invests in the actual securities that are used to generate payment to the tranches.
B. In a synthetic CDO, the SPV invests in the actual securities that are used to generate payment to the tranches.
C. In a synthetic CDO, the SPV does not invest in the actual securities that are used to generate payment to the tranches. 1nstead they invest only in a risk-free bond.
D. In a cash CDO, the SPV does not invest in the actual securities that are used to generate payment to the tranches. 1nstead they invest in a default swap and a risk-free bond.
Answer:A
A cash collateralized debt obligations (CDO) special-purpose vehicle (SPV) invests in the actual securities that are used to generate payment to the tranches. A synthetic CDO's SPV does not invest in the actual securities that are used to generate payment to the tranches. Instead they invest in a default swap and a risk-free bond, and a cash CDO's SPV invests in the actual securities that are used to generate payment to the tranches.