Which tranche in a CMO structure is most exposed to 'Contraction Risk'?
Explanation
Early tranches get paid off first when prepayments speed up.
Other questions
Which of the following best describes the primary role of a Special Purpose Entity (SPE) in a securitization transaction?
In the context of Covered Bonds, what is meant by 'dual recourse'?
Which feature distinguishes a 'Hard-bullet' covered bond from a 'Soft-bullet' covered bond?
Which of the following is an internal credit enhancement that involves the allocation of losses to junior bond classes before senior classes?
In a securitization with a 'waterfall' structure, which tranche is typically referred to as the 'equity' tranche?
Which statement accurately describes 'Excess Spread' in the context of credit enhancement?
What is a primary characteristic of a Credit Card Receivable ABS that distinguishes it from an Auto Loan ABS?
In a Solar ABS transaction, what generally happens during the 'Pre-funding period'?
Which of the following is considered a 'Non-Agency RMBS'?
What is 'Contraction Risk' in the context of Mortgage-Backed Securities?
In a Sequential-Pay CMO structure, how are principal payments distributed?
What is the primary purpose of a Planned Amortization Class (PAC) tranche in a CMO?
Which of the following describes a 'Z-tranche' in a CMO structure?
How does 'Defeasance' function as a call protection mechanism in CMBS?
What is 'Balloon Risk' in a commercial mortgage?
Which ratio is calculated as Net Operating Income (NOI) divided by Debt Service?
What is a 'Collateralized Loan Obligation' (CLO) primarily backed by?
In a CDO structure, what is the role of the 'Collateral Manager'?
Which of the following is true regarding 'Principal-Only (PO)' securities?
What happens in a 'Soft-bullet' covered bond if payments are not made on the scheduled maturity date?
Which party in a securitization transaction safeguards the assets and holds funds due to ABS holders?
What is 'Overcollateralization'?
Which of the following describes 'Interest-Only (IO)' securities?
What is the result of a 'prepayment lockout' in a CMBS?
Which mechanism allows solar ABS investors to be protected against losses?
What is 'Strategic Default' in the context of residential mortgages?
How do 'Agency RMBS' differ from 'GSE RMBS' in terms of government backing?
What is the 'pass-through rate' of a mortgage pass-through security?
In a CDO, if the 'Overcollateralization Test' is failed, what happens?
What is 'Extension Risk'?
Which of the following is true regarding 'revolving periods' in Non-Mortgage ABS?
What defines a 'recourse loan'?
What is the primary collateral for a 'Structured Finance CDO'?
Which of the following describes 'Time Tranching' in a CMO?
What is the key benefit of 'Green Covered Bonds'?
Which factor creates 'Negative Convexity' in callable bonds and MBS?
What is 'Credit Tranching'?
Why might a borrower 'strategically default' on a non-recourse loan?
Which CMBS protection mechanism involves paying a fee to compensate lenders for lost interest?
What is the 'Ramp-up period' in a CLO?
Which of the following is true regarding 'Floating-Rate tranches' in CMOs?
Which feature is unique to a 'Conditional Pass-Through Covered Bond' compared to a Hard-Bullet bond?
What role does the 'Servicer' play in a securitization?
Which of the following is an example of 'External Credit Enhancement'?
What is the 'lockout period' in a Credit Card ABS?
Why do CMBS trade more like corporate bonds than RMBS?
What is the primary function of a 'Support Tranche' in a PAC CMO structure?
In the context of CDOs, what is 'Arbitrage'?
Which risk is specifically associated with the 'Workout period' in a commercial mortgage?