CFA Practice Question

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CFA Practice Question

The motivation for a corporation to issue an asset-backed security is that ______
A. there is the opportunity to reduce funding cost by separating the credit rating of the issuer from the credit quality of the pool of loans or receivables.
B. it allows borrowers to create investment vehicles to satisfy their investment objectives (but forbids them from using swaps for hedging).
C. it allows the use of a short-term unsecured promissory note that is issued in the open market.
Explanation: The security is issued by an SPV, which is also referred to as a "bankruptcy-remote entity," with operations limited to the acquisition and financing of specific assets. The SPV is usually a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if a parent company goes bankrupt.

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