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Chapter 9 Multiple Choice Questions 1. Securitized assets carry a unique form of risk called: A) Default risk B) Inflation risk C) Interest-rate risk D) Prepayment risk E) None of the above 2. The party for whom a standby credit letter is issued by a bank is known as the: A) Account party B) Beneficiary C) Representative D) Credit Guarantor E) None of the above 3. Loan-backed securities, which closely resemble traditional bonds, carry various forms of credit enhancements, which may include all of the following, EXCEPT: A) Credit letter guaranteeing repayment of the securities. B) Set aside of a cash reserve. C) Division into different risk classes. D) Early payment clauses. E) None of the above. 4. In some instances, a bank will sell loans and agree to give the loan purchaser recourse to the seller for all or a portion of those loans that become delinquent. In this case, the purchaser, in effect, gets a: A) Call option. B) Put option. C) Forward contract. D) Futures contract E) None of the above. 5. Securitization had its origin in the selling of securities backed by _____________ A) Credit card receivables B) Residential mortgage loans C) Computer leases D) Automobile loans E) Truck leases 6. Banks that issue standby letters of credit may face which of the following types of risk? A) Prepayment risk. B) Interest-rate risk. C) Liquidity risk. D) All of the above. E) B and C only. 7. A standby credit letter is a (or an): A) Securitized strip B) Loan strip C) Contingent obligation D) Indirect loan E) None of the above. 8. A bank that wants to protect itself from higher credit costs due to a decrease in its credit rating might purchase _________________________ . A) A credit risk option B) A standby letter of credit C) A credit linked note D) A credit swap E) None of the above 9. By agreeing to service any assets that are packaged together in the s