Foundations of Financial Management: Define and discuss the following types of financial derivatives- futures, mortgage backed securities
Futures means those derivative financial contracts which obligate the parties to contract to transact an security at a predetermined future date and price decided today . Here, the purchaser must purchase or the seller must sell the underlying security at the price, irrespective of the current market price at the date of expiry.
Underlying assets may include physical commodities or other instruments. Futures contracts includes the detail of the quantity of the underlying asset and are standardized to facilitate trading on a futures stock exchange. It can be used to hedge or trade speculation.
Mortgage-backed securities are those investments which are secured by mortgages. They’re backed by asset. A security is an investment which is being traded on a secondary market. It allows investors to gain benefit from the mortgage business without having to buy or sell an actual house loan. Typically the buyers of these securities are
institutional
corporate
individual investors.
First step:- , a bank lends a home loan. Then the bank then sells that loan to an bank. It uses the money received from the investment bank to make another loans.
The investment bank adds the house loan to other bundle of mortgages with similar interest rates. It accumulates the bundle in a special company designed It's called a Special Purpose Vehicle . That helps to keep the mortgage-backed securities separate from the bank's different services. The SPV then markets the mortgage-backed securities.
Foundations of Financial Management: Define and discuss the following types of financial derivatives- futures, mortgage backed securities
add a detailed description of mortgage-backed securities in the context of the Global Financial Crisis, which includes: A detailed and specific outline of mortgage-backed securities themselves, an explanation of why they can be useful financial instruments, an explanation of the role they played in the Global Financial Crisis, and a comparison between 2) and 3), explaining why the potential benefits and uses of mortgage-backed securities did not manifest in the Global Financial Crisis.
Foundations of Financial Management: Define and discuss what an exchange rate is and how exchange rates impact international business where firms do business in several currencies worldwide
Since the 2007 financial crisis the Fed’s portfolio of Treasury and mortgage-backed securities has grown tremendously, from $900 to around $4.0 trillion today. In recent years there has been much discussion about how and how quickly the Fed may begin reducing the size of its balance sheet. What is the Fed’s balance sheet? What’s your take? Should the balance sheet be smaller?
Since the 2007 financial crisis the Fed’s portfolio of Treasury and mortgage-backed securities has grown tremendously, from $900 to around $4.0 trillion today. In recent years there has been much discussion about how and how quickly the Fed may begin reducing the size of its balance sheet. What is the Fed’s balance sheet? What’s your take? Should the balance sheet be smaller?
uestion 10(9 pts); Please answer the following questions about securitization: What are MBS (mortgage-backed securities), CDO (collateralized debt obligations), and synthetic CDO? What are the differences between MBS and CDO? What is SPV (special purpose vehicle)? How did SPV contribute to the financial crisis of 2007- 2009?
Prior to the Financial Crisis, rating agencies mistakenly rated Mortgage Backed Securities (MBS) too high because: Historically, mortgages have very low default rates. The payments on the MBS’s were “insured” by credit default swaps. The agencies didn’t account for the increase in sub-prime mortgages. All of the above. Why should credit analysts be concerned if a company’s stock trades below book value? It means the company is probably going bankrupt It means the company will probably incur lots of debt...
The derivatives markets contain different types of contracts. Forward contracts, futures contracts, options, and swaps are some common types of derivatives contracts. True or False: One of the major differences between futures and forward contracts is that forward contracts are revalued and marked-to-market daily, whereas futures contracts are traded on an organized exchange. O False True Which of the following are used to hedge against fluctuating interest rates, stock prices, and exchange rates? Commodity futures Financial futures O Ahmad feels...
Which of the following are not examples of derivatives? A.) local government bonds B.). credit default swaps C.) collateralized debt obligations D.) mutual funds E.) mortgage backed securities
Which of the following are types of financial derivatives? More than one answer is possible. Currency Swap Call option on IBM stock Future on Oil L’Hospital’s Rule
there are two parts to the question U.S. Treasury bils Demand deposits $16 $35 Mortgage-backed securities Loans from other banks CAl loans $34 $8 $46 Discount loans $8 NOW accounts $42 Savings accounts Reserve deposits with Federal Reserve $10 $9 Cash items in the process of colection Municipal bonds Bank building $10 $5 $4 Use the entries given above to construct the following balance sheet which is similar to the one displayed in the text Liabilities +Bank Capital Assets Total...