Q2.Why do rating agencies assign two types of ratings to the debt of a sovereign entity?
The rating agencies assign two types of ratings to sovereign debt:
Local Currency Debt Rating Foreign Currency Debt Rating The reason for assigning two ratings is historically, the default frequency differs by the currency denomination of the debt. Specifically defaults have been greater on foreign currency denominated debt. Q6.What is US federal agency debenture? Debt issued by a federal agency or a government-sponsored enterprise (GSE) for financing purposes. These types of debentures are not backed by collateral, but by the integrity and credit worthiness of the issuer. Q.8 a) Prepayment: A payment made in excess of the monthly mortgage payment is called a prepayment. b) Curtailment: When a prepayment is not for the entire amount, it is called a curtailment. c) What do the monthly cash flows of a mortgage backed security consist of? The cash flows for a mortgage loan are monthly and consist of three components: (1) net interest, (2) scheduled principal payment, and (3) prepayment Q10.a) Difference between mortgage pass-through security and mortgage pass-through security?
Mortgage Pass-Through Security
Collateralized Mortgage Obligation
A mortgage pass-through security is
created when one or more holder of the mortgages form a portfolio or pool of mortgages and sells shares or participation certificates in the pool to investors.
In a mortgage pass-through security
(CMO), there are rules for the payment of interest and principal (scheduled and prepaid) to the bond classes (tranches) in the CMO.
b) Why is collaterized mortgage obligation created?
CMOs are created so as to redistribute prepayment risk and interest risk among the different tranches of bonds using rules for the distribution of interest and principal. CMOs are structured so as to redistribute prepayment risk and interest risk among the different tranches of bonds using rules for the distribution of interest and principal.