Which of the following descriptions of the features of either a mortgage-backed security (MBS) or an asset-backed commercial paper (ABCP) are most accurate?
ABCP asset pools typically back short-term commercial paper issues.
Given the nature of collateral in an MBS, the collateral is not placed in the care of a trustee.
The credit enhancements to MBSs by government-sponsored entities effectively eliminate default and interest rate risk.
There is no active secondary market for ABCPs.
A. II and III. B. II, III and IV. C. I, II and IV. D. I and III.
Statements I, II and IV accurately describe the features of either an MBS or an ABCP. Statement III is incorrect, however, because although support from government-sponsored entities (such as Ginnie Mae and Freddie Mac) effectively eliminate default risk in an MBS, the MBS is still exposed to prepayment and interest rate risks.
